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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NO. 1-13272
SPECIALTY TELECONSTRUCTORS, INC.
(Name of small business issuer in its charter)
NEVADA 85-0421409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12001 STATE HWY 14 NORTH
CEDAR CREST, NEW MEXICO 87008
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (505) 281-2197
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
TITLE OF CLASS
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Common Stock, $.01 Par Value
Warrants to Purchase Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this Form 10-KSB, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
The issuer's revenues for its most recent fiscal year were $16,758,629.
The approximate aggregate market value of voting stock held by
non-affiliates, computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of September 18, 1996, was
$10,495,359.38. The number of shares of common stock outstanding as of September
13, 1996, was 4,092,308.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement relating to the
registrant's 1996 annual stockholders' meeting are incorporated by reference in
Part III of this Form 10-KSB.
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SPECIALTY TELECONSTRUCTORS, INC.
ANNUAL REPORT
FORM 10-KSB
YEAR ENDED JUNE 30, 1996
PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended and
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto. Such forward-looking statements are subject to a
number of risks and other factors that could cause the Company's actual results
to differ materially from those contained in these forward-looking statements,
including those set forth under the heading "CAUTIONARY FACTORS" under ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION and the risks and
other factors described elsewhere herein. The cautionary factors, risks and
other factors presented should not be construed as exhaustive.
GENERAL
Specialty Teleconstructors, Inc., a Nevada corporation (together with its
wholly-owned subsidiaries, the "Company"), designs, builds, installs, modifies
and maintains (collectively, "wireless infrastructure building and
implementation services") wireless communications transmitting and receiving
facilities primarily for providers of wireless communications services. In
addition, the Company (i) provides electrical design, engineering, and testing
services (collectively, "wireless infrastructure electrical design and
engineering services") and site acquisition and evaluation services ("site
acquisition services") in connection with the installation and location of
wireless communications facilities. The Company also manufactures and sells
unmanned communications shelters designed to be located adjacent to wireless
transmitting and receiving facilities to house electrical equipment associated
with such facilities. The Company's customers include providers of a broad
range of wireless communications services including paging services, analog and
digital cellular telephone services, personal communications services or "PCS",
specialized mobile radio or "SMR" services, enhanced specialized mobile radio or
"ESMR" services and microwave communications services. The Company conducts
business primarily through its subsidiaries. The Company's principal operating
subsidiaries include Specialty Constructors, Inc., a New Mexico corporation
("Specialty Constructors"), Specialty Combined Resources, Inc., a Texas
corporation ("Specialty Combined Resources"), Specialty Management, Inc., a
Nevada corporation ("Specialty Management") and Specialty Fortress, a Nevada
corporation ("Specialty Fortress"). The Company's headquarters are located in
Cedar Crest, New Mexico, approximately seven miles from Albuquerque, New Mexico.
The Company also maintains regional offices in Laguna Hills, California,
Houston, Texas, Fairview Heights, Illinois (located just outside St. Louis,
Missouri), Crest Hill, Illinois (located just outside Chicago, Illinois),
Birmingham, Alabama, Columbus, Ohio and Orlando, Florida.
HISTORY
The Company was incorporated in April, 1994 for the purpose of acquiring all of
the issued and outstanding shares of capital stock of Michael R. Budagher
Specialty Constructors, Inc., a New Mexico corporation. In 1995, Michael R.
Budagher Specialty Constructors, Inc. changed its corporate name to Specialty
Constructors, Inc. Originally, the Company's primary business was constructing,
maintaining and modifying microwave transmission and receiving facilities
predominantly for providers of short- and long-distance microwave communications
services. Later, the Company began installing electronic and other related
equipment in connection with these facilities. Following the initiation of the
build out of cellular telephone networks in the United States, which began in
1983, the Company began to build, construct, enhance and maintain cellular
transmitting and receiving facilities as well as microwave transmitting and
receiving facilities. Throughout the late 1980's and continuing until the mid-
1990's, a majority of the Company's growth and revenues were derived from
wireless infrastructure building and implementation services related to the
continuing build out and expansion of cellular telephone and paging networks. In
the early, 1990's, the Company began an effort to expand the scope of the
services offered by the Company to include wireless infrastructure electrical
design and engineering services. As a part of this expansion, in July 1995, the
Company acquired ST Combined Resources, Inc., a California-based provider of
electrical design and engineering services to the wireless communications
industry. Following the acquisition, ST Combined Resources, Inc. changed its
corporate name to Specialty Combined Resources, Inc.
During the fiscal year ended June 30, 1996, the Company continued to derive a
significant portion of its revenues from wireless infrastructure building and
implementation services rendered to providers of microwave and analog cellular-
based wireless communications
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services. In addition, over the past two fiscal years, the Company experienced
increasing demand for its services from providers of wireless communications
services utilizing new or enhanced wireless communications technologies such as
PCS, ESMR and digital cellular. This trend accelerated during fiscal 1996 as the
Company experienced significant demand related to the build out of new PCS-based
wireless communications networks.
THE WIRELESS COMMUNICATIONS INDUSTRY
Overview. The demand for wireless communications services in the United States
has grown dramatically during the last five years. At present, the rate of
wireless telephony penetration in the United States is estimated to be 13% and,
according to Kagan Associates, is expected to reach 48% by 2006. According to
the Cellular Telecommunications Industry Association ("CTIA"), the compound
annual growth rate of cellular subscribers exceeded 45% from 1990 through 1995.
The wireless communications industry is characterized by networks that use radio
waves to transmit voice and data signals. Typically, different technologies or
applications use different frequencies within the radio spectrum. Examples of
wireless communications technologies include paging services, which involve one-
way or limited two-way data transmission capability, and cellular, PCS services,
SMR and ESMR services, all of which involve two-way voice and data transmission
capabilities.
Cellular. Although SMR and other radio-based communications technologies have
been utilized commercially by taxi cabs, ambulance fleets and other fleet
dispatch services and by government entities such as police and fire departments
for many years, the widespread use of wireless communications technologies for
the general public began with the advent of the cellular telephone industry. The
cellular telephone industry began in 1983 when the FCC began granting licenses
to two licensees in each metropolitan statistical area ("MSA") and many rural
areas ("rural service areas") throughout the United States. Cellular licenses
were eventually awarded in 306 MSAs and 428 rural service areas. In 1986, the
FCC granted additional portions of the radio spectrum to each holder of a
cellular license. Cellular networks operate within a 50 MHz band located in the
800-900 MHz frequency range. Paging services also began to expand rapidly in the
1980's. Paging services utilize a different portion of the radio spectrum and,
while not offering two-way voice transmission capability, historically have
offered a lower-cost alternative for mobile communications than cellular
telephony.
PCS. During the late 1980's and early 1990's, advances in technology of wireless
communications gave rise to a new technology known as PCS. In 1993, Congress
enacted legislation directing the FCC to allocate a portion of the radio
spectrum for PCS via competitive bidding. In response, the FCC established PCS
service areas in the United States and began to hold auctions for portions or
"Blocks" of the radio spectrum designated for PCS services. Compared with
cellular, PCS will operate at higher frequencies within a 140 MHz band in the
1850-1990 MHz frequency range and in slightly different geographic coverage
areas. The geographic areas for PCS licenses are divided into 51 major trading
areas ("MTAs") for A- and B-Block licenses, and 493 basic trading areas ("BTAs")
for other PCS licenses, including the C-, D-, E- and F-Block licenses. MTAs and
BTAs are different than the metropolitan statistical areas and rural service
areas.
In March 1995, the FCC completed the A- and B-Block PCS auction, resulting in
the award of two 30 MHz licenses in each MTA. In May 1996, the FCC completed the
C-Block Auction, resulting in the award of one 30 MHz license in each BTA. After
completion of the C-Block auction, the FCC reauctioned 18 C-Block licenses for
which the high bidders failed to make initial post-auction down payments. On
August 26, 1996, the FCC began the auction for the D-, E- and F-Block licenses,
which will be for one 10 MHz license in each BTA.
SMR and ESMR Services. As a result of advances in digital technology some
providers of wireless communications services have begun to design and deploy or
modify networks that utilize SMR and ESMR technologies. ESMR technology
increases the capacity of SMR networks enabling more efficient use of the
allocated frequency. This increase coupled with additional advances in switching
technologies are intended to enable ESMR networks to compete effectively with
cellular and PCS networks. While ESMR technology may offer certain cost
advantages over cellular and PCS technologies, at the present time, it is
unclear whether ESMR technologies can compete effectively with cellular and PCS
networks.
Other wireless communications technologies. The FCC has proposed or adopted
final rules authorizing additional wireless communications services. For
example, the FCC has proposed to authorize the use of the 37 and 39 GHz bands
for the provision of fixed and mobile communications services. In May 1996, the
FCC adopted final rules to permit Interactive Video and Data Service licensees
to provide mobile two-way data services. Also in May 1996, the FCC authorized
local multipoint distribution service licensees to provide certain fixed and
mobile communications services. The FCC has proposed to reallocate former
federal government spectrum located at 4 GHz for a broad range of wireless fixed
and mobile services, and is expected to reallocate additional former federal
government spectrum for wireless mobile services in the future.
Several national and global mobile satellite or "MSS" based systems also have
been proposed that are intended to compete directly with land-based wireless
communications networks. In theory, this technology could create an alternative
to land-based wireless networks that
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might reduce or slow the growth in demand for new and enhanced land-based
wireless communications transmitting and receiving facilities, which could have
a material adverse effect on the Company's business, financial condition and
results of oprtaion. At the present time, it is not possible to forecast the
effect, if any, that MSS or any other alternative technology will have on the
demand for wireless communications infrastructure development. However, at the
present time, Management does not believe that MSS technologies will adversely
effect demand for the Company's services in the foreseeable future.
COMPETITION
Historically, the industry for wireless infrastructure building and
implementation services has been highly fragmented. As such, most participants
in this industry have been relatively small firms of between three to fifty
employees. However, the Company has also faced competition in the market for
wireless infrastructure building and implementation services from wireless
communications equipment manufacturers which provide such services in
conjunction with the sale of wireless communications equipment. While the
industry continues to be comprised predominately of these smaller firms, over
the past two years, the increased demand for wireless infrastructure building
and implementation services has motivated other competitors to enter the market.
These new competitors include, but are not limited to, traditional, non-wireless
engineering and construction companies and non-wireless subcontractors who have
begun to enter the market either alone or in conjunction with wireless equipment
manufacturers. As demand for wireless infrastructure building and
implementation services increases, Management expects that more non-traditional
competitors will enter the market and provide increased competition to the
Company. In addition, the Company faces competition in the market for wireless
infrastructure electrical design and engineering services from stand-alone
electrical engineering and design firms, other providers of wireless
infrastructure building and implementation services and wireless communications
equipment manufacturers.
EMPLOYEES
As of September 1, 1996, the Company employed 156 full-time employees, 105 in
wireless infrastructure building and implementation services, 16 in wireless
infrastructure electrical design and engineering services, 14 in manufacturing
and related operations, and the remainder in executive and administrative
positions. This is an increase of 76 employees from August 1, 1995. This
increase is primarily due to additional installation and maintenance personnel
and administrative personnel required to facilitate the Company's growth. None
of the Company's employees is represented by a labor union and the Company
considers its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company presently leases approximately 5,400 square feet of office space
from Michael R. Budagher, its Chairman of the Board, President, Chief Executive
Officer, Treasurer and a Director, for $16,800 annually. See "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." The office space is located in a 6,400
square foot building in Cedar Crest, New Mexico. This office serves as the
Company's headquarters and as a regional office for the Company's wireless
infrastructure building and implementation and wireless infrastructure
electrical design and engineering operations. Management believes the Company's
offices in Cedar Crest will be adequate to meet the Company's needs for at least
the next twelve months.
In addition, the Company maintains two regional offices in Illinois and one each
in Ohio, Alabama, Florida, Texas and California, from which the Company conducts
primarily wireless infrastructure building and implementation operations. In
addition to the Company's headquarters facility in Cedar Crest, New Mexico, the
Company's electrical design and engineering operations are conducted primarily
from offices located in Laguna Hills, California and Houston, Texas. The
Company also maintains a facility for the construction of shelters in
Albuquerque, New Mexico. All of the Company's regional offices and its shelter
construction facility are leased pursuant to operating leases that do not exceed
five years in duration. During fiscal 1996, the Company closed its Wycoff, New
Jersey regional office.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any pending legal proceeding. The
Company maintains general liability insurance against risks arising out of the
normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "SCTR." On September 18, 1996, there were approximately 1,083 holders of
record of the Company's common stock. The following table sets forth the
quarterly high
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and low bid prices for the Company's common stock. These prices reflect
inter-dealer prices and do not include adjustments for retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
Fiscal Year Ended
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June 30, 1995: High Low
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Fiscal Quarter Ended 12/31* $5.00 $2.75
Fiscal Quarter Ended 03/31 $4.625 $2.875
Fiscal Quarter Ended 06/30 $3.625 $2.125
Fiscal Year Ended
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June 30, 1996: High Low
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Fiscal Quarter Ended 09/30 $3.875 $2.50
Fiscal Quarter Ended 12/31 $3.375 $2.00
Fiscal Quarter Ended 03/31 $5.75 $2.25
Fiscal Quarter Ended 06/30 $6.25 $3.625
* Reflects trading from November 7, 1994 through December 31, 1994.
To date, the Company has not declared or paid any cash dividends on its common
stock, and the present policy of the Board of Directors is to retain any
earnings to provide for the Company's growth. Any future determination to pay
dividends will be at the discretion of the Board of Directors, and dependent
upon the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
On July 1, 1995, the Company issued 92,308 shares of previously unissued common
stock in connection with the Company's acquisition of ST Combined Resources,
Inc.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended and
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto. Such forward-looking statements are subject to a
number of risks and other factors that could cause the Company's actual results
to differ materially from those contained in these forward-looking statements,
including those set forth below under the heading "CAUTIONARY FACTORS" and the
risks and other factors described elsewhere herein. The cautionary factors,
risks and other factors presented should not be construed as exhaustive.
OVERVIEW
ACQUISITIONS
On July 1, 1995, the Company acquired all of the issued and outstanding capital
stock of ST Combined Resources, Inc. The ST Combined Resources, Inc. acquisition
was accounted for as a pooling of interests. On October 23, 1995, the Company
acquired substantially all the assets of Orlando Tower, Inc., an Orlando,
Florida-based builder of wireless transmitting and receiving facilities, for
approximately $163,000 in cash. The acquisition was accounted for as a purchase.
RESULTS OF OPERATIONS
Comparison of the Fiscal Years Ended June 30, 1996 and 1995
Revenues. For the fiscal year ended June 30, 1996, revenues increased to
$16,758,629 from $8,414,590 in the fiscal year ended June 30, 1995, which
represents an increase of $8,344,039 or 99% over fiscal 1995. This increase in
revenues resulted primarily from growth in the Company's wireless infrastructure
building and implementation services business. During the fiscal year ended
June 30, 1996, three customers represented approximately 44% of the Company's
revenues; PCS PrimeCo 18%, Sprint Cellular Company 16% and Cellular One 10%.
Gross Profit. Gross profit for fiscal year ended June 30, 1996 increased
$1,347,476 or 95% from $1,424,802 in fiscal 1995 to $2,772,278 in fiscal 1996.
Gross profit as a percentage of revenue remained unchanged at 17% for both
fiscal 1995 and fiscal 1996.
Selling, general and administrative ("SG&A") expenses. As a percentage of
revenues, SG&A expenses decreased from 12% of revenues in fiscal 1995 to 10% of
revenues in fiscal 1996. SG&A expenses increased $650,188 or 62% from $1,050,666
in fiscal 1995 to $1,700,854 in fiscal 1996. The decrease in SG&A expenses as a
percentage of revenue was primarily attributable to increased operating and
administrative efficiencies realized as a result of additions to the Company's
administrative staff and facilities during the fiscal year ended 30, 1995 and
the increase in revenues generated during the fiscal year ended June 30, 1996.
The increase in SG&A expenses resulted primarily from increased marketing and
administrative expenses associated with additional personnel added to
accommodate the Company's growth.
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Net Earnings. Net earnings increased $464,200 or 136% to $804,355 in the fiscal
year ended June 30, 1996 from $340,155 in the fiscal year ended June 30, 1995.
As a percentage of revenue, net earnings increased to 5% in fiscal 1996 from 4%
in fiscal 1995. This increase in net margin was primarily attributable to
improvements in the Company's operating margin resulting from strong demand for
the Company's wireless infrastructure building and implementation services and a
decrease in SG&A expenses as a percentage of revenue.
Comparison of the Fiscal Years Ended June 30, 1995 and 1994
Revenues. The Company's revenues for the fiscal year ended June 30, 1995
increased to $8,414,590 from $6,435,759 for the same time period in the prior
year, an increase of approximately 31%. Four accounts represented 55% of the
Company's revenues for the year ended June 30, 1995; Bell Atlantic Mobile 21%,
Cellular One 10%, Nextel Communications 10% and Sprint Cellular 14%.
Beginning late in the Company's second quarter of fiscal 1995, the Company began
to increase its project management staff, eventually increasing the staff by
275% and opening four regional offices. Beginning at the same time and
continuing through the third quarter of the 1995 fiscal year, the Company's
revenue growth paused. Management of the Company believes that this pause may
have occurred because service providers were preoccupied with the auctioning of
PCS licenses by the Federal Government and the consequences of that action on
the short and long-term plans of service providers. The increase in project
management staff significantly increased the Company's cost of revenues. This
increase, together with the lack of revenue growth during the same period,
adversely affected the Company's gross profit. Gross profit, as a percentage of
revenues, decreased from 27% to 16% for the year ended June 30, 1995 compared to
the year ended June 30, 1994. There are two significant contributors to this
decline, namely, the 275% increase in project management staff and the increased
resources needed to supply its customers' demand for shelters.
In anticipation of growth, the Company expanded its operations and personnel in
various regions throughout the United States. In December of 1994, the Company
opened an office in the Chicago, Illinois area staffed by three project
managers, two of whom were newly hired or promoted. In February of 1995, the
Company opened an office in the Columbus, Ohio area staffed by two project
managers, both of whom were newly promoted. In April of 1995, an office was
opened in Birmingham, Alabama with one newly promoted project manager and one
newly promoted site supervisor. In June 1995, the Company opened an office in
Wycoff, New Jersey with two newly hired project managers. In total, the Company
increased its project management staff by 275% throughout the course of the
fiscal year ended June 30, 1995. The project manager is viewed as the front-
line person responsible for customer satisfaction through quality services and
timely completion of the projects. The Company experienced inefficiencies
associated with the 275% growth in project management staff. These
inefficiencies resulted from project management staff being in place prior to
contracts being entered into that utilized such staff and the hiring of required
field personnel. Management believes that a strong project management staff is
one of the first steps to preparing for the growth of the industry and is
critical to continued growth of the Company.
During the year ended June 30, 1995, the Company was asked by one of its major
customers to provide portable shelters to house communications equipment used at
cellular transmission facilities. In anticipation of the potential for a
significant market in these shelters to multiple customers, the Company
established a facility in Albuquerque, New Mexico and began producing as demand
required. Management of the Company believes that this effort has significant
potential and will continue to evaluate the opportunity in the next fiscal year.
SG&A Expenses. SG&A expenses for the year ended June 30, 1995 increased to
$1,050,666 from $732,290 for the same time period in the prior year, an increase
of 4% as a percentage of revenues. The Company incurred an increase in SG&A
costs attributable to the opening of four new offices, as discussed above. In
addition, the company incurred costs associated with the acquisition of two
companies, the equipment and personal property of Vidano Corporation in April
1995 and the equity of ST Combined Resources, Inc. in July 1995. A significant
percentage of the increase in SG&A expenses was attributable to fees associated
with being a publicly traded entity, such items as investor relations, legal and
accounting fees for public filing requirements and directors and exchange
listing fees.
Net Earnings. Net earnings decreased to $340,155 for the fiscal year ended June
30, 1995 from $654,044 for the fiscal year ended June 30, 1994, a decrease of
approximately 4% expressed as a percentage of revenues. This decrease was
attributable to increases in costs associated with the 275% increase in project
management staff, the building of communications shelters, the costs associated
with opening new offices and being a publicly traded entity.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and temporary investments totaling
$2,863,469, a decrease of $1,223,037 from June 30, 1995. During the fiscal year
ended June 30, 1996, cash utilized for operating activities was $833,057. Net
cash flow from operating activities was impacted primarily by increases in
accounts receivable associated with increased revenues generated during fiscal
1996 as compared to fiscal 1995. During fiscal 1996, the Company expended
$1,687,336 on capital expenditures, primarily for additional vehicles and
equipment used in the Company's wireless infrastructure building and
implementation services business.
Net cash generated by financing activities during fiscal 1996 was $1,297,356,
consisting of short-term borrowings under the Company's existing line of credit
and from borrowings
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associated with the acquisition of new vehicles. In November, 1994, the Company
completed an initial public offering of 500,000 Units (the "Units"). Each Unit
consisted of two shares of the Company's common stock and one redeemable common
stock purchase warrant ("Warrants"). Each Warrant entitles the holder thereof to
purchase one share of the Company's common stock for a purchase price equal to
$6.00 at any time prior to November 3, 1999. In addition, the Warrants are
subject to redemption by the Company prior to November 3, 1999 under certain
circumstances. At June 30, 1996, approximately $3.18 million of proceeds from
the Company's initial public offering remained. At present, the Company intends
to utilize the majority of the unexpended proceeds to effect acquisitions,
although the Company may also utilize a portion of such proceeds for working
capital and other general corporate purposes.
At June 30, 1996, the Company had a $2 million line of credit (the "Line of
Credit") with First State Bank, Albuquerque, New Mexico, to be used for working
capital. The Line of Credit is secured by the accounts receivable of Specialty
Constructors. At June 30,1996, borrowings under the Line of Credit totaled
$1,900,000 and $100,000 was available for future borrowing. The final maturity
date of the Line of Credit is May 1997. Outstanding borrowings under the Line
of Credit accrue interest at the prime rate which was 8.25% at June 30, 1996.
The Company's future cash requirements for fiscal 1997 and beyond will depend
primarily upon the level of wireless infrastructure building and implementation
business conducted by the Company, the level of working capital needed to
generate the revenues associated with such business and acquisition
opportunities. The Company believes that revenues from operations, amounts
available under the Line of Credit and other capital resources available to the
Company will be adequate to satisfy its working capital requirements for at
least the next twelve months.
BUSINESS STRATEGY
Management believes the success of the Company is dependent on the continued
expansion and development of the wireless communications industry and the
Company's ability to attract and retain experienced, highly skilled workers.
Historically, the expansion of the wireless communications industry has
necessitated the construction of large numbers of new transmitting and receiving
facilities. Because the construction of wireless transmitting and receiving
facilities is highly specialized, such construction demands highly skilled,
experienced personnel. Over the past several years, the Company has experienced
increasing demand for the Company's wireless infrastructure building and
implementation services. Management believes this increasing demand is a result
of the continued expansion of the wireless communications industry, the
Company's expertise and experience in the implementation of wireless
transmitting and receiving facilities and the Company's reputation for quality
workmanship.
Management believes the growth in demand for wireless infrastructure building
and implementation services will continue as the wireless communications
industry continues to expand and develop, fueled in part by the introduction of
new and enhanced wireless communications technologies such as PCS, ESMR and
digital cellular. As an example, Management anticipates that the completion in
1995 and 1996 of FCC auctions of the A-, B- and C- Block portions of the radio
spectrum allocated by the FCC for PCS licensees will result in the build out of
significant numbers of new PCS systems over the next five to ten years. This is
due in part to the fact that the FCC has mandated that recipients of PCS
licenses adhere to five-year and 10-year build out requirements. Under both
five- and 10-year build out requirements, all 30 MHZ PCS licensees (which
includes holders of all of the approximately 595 A-, B- and C-Block PCS licenses
awarded as of September 1, 1996) must construct facilities necessary to provide
coverage to at least one-third of the population in their service areas within
five years from the date of initial license grants. Service must be provided to
two-thirds of the population within 10 years. Violations of these regulations
could result in license revocations, forfeitures or fines.
Management also believes that implementation of new PCS systems may create
significant wireless infrastructure building activity as new PCS licensees pay
to alter or relocate certain existing communications facilities operated by
holders of fixed microwave licenses that currently operate within the same
frequency ranges as the new PCS licensees. This is because, in an effort to
balance the competing interests of existing microwave users and newly authorized
PCS licensees, the FCC has ruled that for a period of up to five years after the
grant of a PCS license, PCS licensees may be required to share their radio
spectrum with existing fixed microwave licensees operating on the same
frequencies as those of the new PCS licensees. In order to initiate service
within the required timeframe, many of these new PCS licensees will arrange and
pay for the relocation of certain of these existing users to alternate spectrum
locations or transmission technologies.
In addition to the demand for wireless infrastructure building and
implementation services created by the construction of new wireless
communications networks, Management anticipates that operators of existing
wireless communications networks, such as analog cellular networks, will
continue to demand such services. This is because Management believes many of
these operators will undertake significant infrastructure building and
enhancement activities as they expand their coverage areas and upgrade their
transmitting and receiving facilities in an effort to remain competitive with
newer networks such as PCS. Management believes that as the wireless
communications industry becomes more competitive, quality implementation of new
transmitting and receiving facilities and timeliness of new facilities
implementation
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will become increasingly important to providers of wireless communications
services.
Management intends to seek to capitalize on the demand for wireless
infrastructure building and implementation services by continuing to expand its
workforce and geographic presence in the marketplace and its capability to offer
wireless infrastructure design and engineering services and site evaluation
services. Management believes that the Company's ability to attract, train and
retain highly skilled workers is critical to the Company's ability to compete
effectively. In order to address this need, Management has sought and intends to
continue to seek to acquire other companies within the wireless infrastructure
development industry that have good reputations for quality service and highly
skilled workers. Management also intends to continue to enhance its indigenous
new employee hiring, training and retention programs as a method for attracting,
training and retaining new, highly skilled workers. Finally, Management intends
to enhance its product line for communications shelters and to increase its
marketing and distribution efforts related to such shelters. To accomplish
these goals, Management also intends to continue its geographic expansion by
opening new regional offices when demand for the Company's services or
acquisition opportunities make such expansion feasible.
CAUTIONARY FACTORS
The Company does not provide forecasts of potential future financial
performance. While the Company's management is optimistic about the Company's
long-term prospects, the following issues and uncertainties, among others,
should be considered in evaluating its growth outlook.
WIRELESS COMMUNICATIONS INDUSTRY RISKS. Management believes the Company's future
prospects are in large part dependent on the continued vitality and expansion of
the wireless communications industry. Consequently, any downturn or other
disruption of the wireless communications industry caused by adverse competitive
developments, technological changes, government regulation or other factors
would have a material adverse affect on the Company's business, financial
condition and results of operations.
INFLATION. Management does not believe that inflation has had or will have a
material impact on the Company's results of operations. Management believes
that, for the foreseeable future, the Company will be able to increase prices
received for its products and services to keep pace with inflationary increases
in costs without a significant decline in business.
GOVERNMENT REGULATION. The wireless communications industry is subject to
regulation by state regulatory agencies, the FCC, Congress, the courts and other
governmental bodies. There can be no assurance that any of these governmental
bodies will not adopt or change regulations or take other actions that would
adversely affect the wireless communications industry and the Company's
business, financial condition and results of operations.
In addition, the Telecommunications Act of 1996 is expected to cause
significant changes in existing regulation of the telecommunications industry
that are intended to promote the competitive development of new services, to
expand public availability of telecommunications services and to streamline
regulation of the industry. These changes include requirements that local
exchange carriers must: (i) permit other competitive carriers, which may include
many wireless communications service providers, to interconnect to their
networks; (ii) establish reciprocal compensation agreements with competitive
carriers to terminate traffic on each other's networks and (iii) offer resale of
their local loop facilities. The implementation of these requirements by the FCC
and state authorities potentially involves numerous changes in established rules
and policies that could adversely affect the wireless communications industry
and the Company's business, financial condition and results of operations.
HEALTH RISKS. Allegations have been raised that the use of cellular telephones
and other wireless communications devices may pose health risks to humans due to
radio frequency ("RF") emissions from the handsets. Studies performed by
wireless telephone equipment manufacturers dispute these allegations, and a
major industry trade association and certain governmental agencies have stated
publicly that the use of such phones poses no undue health risk. Regardless of
the truth of these allegations, they could have an adverse effect on the
wireless communications industry which in turn could have an adverse effect on
the Company. In addition, digital wireless telephones have been shown to cause
interference to some electronic devices, such as hearing aids and pacemakers.
Concerns over RF emissions also may have the effect of discouraging the use of
wireless communications. The FCC currently is conducting a rulemaking proceeding
to update the guidelines and methods used for evaluating RF emissions from radio
equipment, including wireless telephones. The FCC's proposal, if adopted, would
impose more restrictive standards on RF emissions from devices such as hand-held
cellular and PCS telephones. These concerns could have an adverse effect on the
wireless communications industry which in turn could have an adverse effect on
the Company.
SEASONALITY OF INSTALLATION ACTIVITIES. Historically, the rate at which
contracts for the installation and retrofit of wireless communications
facilities are awarded has been lower
<PAGE>
during the period from January 1 to March 31 of each year due to contracting
practices of many providers of wireless communications. In addition, cold
weather and the limited daylight hours in the winter months in certain markets
have lowered the revenues received from wireless infrastructure building and
implementation services during these months. Therefore, the Company may
experience lower than average revenues during the winter season.
PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE. The Company's growth depends in part
on the development and market acceptance of communications shelters and other
products. There is no assurance that the Company will be able to develop or
acquire successful communications shelters and other products and that delays in
product introduction will not be experienced, or that once such products are
introduced, the market will accept them.
INTEGRATION OF ACQUIRED BUSINESSES. To the extent the Company's business
strategy involves acquisitions, the integration of acquired businesses can be
difficult and costly. These acquisitions will require management time and
attention and will only be fully successful if operations are combined in an
orderly and timely manner.
COMPETITION AND TECHNOLOGICAL CHANGE. The wireless communications industry is
highly competitive. The Company competes with many larger companies that have
access to greater capital and other resources than the Company. In addition,
this industry is characterized by rapid new product development and
technological change. These changes could reduce, delay or make unnecessary the
expansion or construction of new wireless communications networks, which could
render the Company's products and services obsolete or noncompetitive.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends in
substantial part upon the continued contributions of its key senior management
personnel, in particular, Mr. Michael R. Budagher, a founder, director and the
Company's Chairman of the Board, President and Chief Executive Officer and
Treasurer. Mr. Budagher is not bound by an employment agreement and the loss of
the services of Mr. Budagher would have a material adverse effect upon the
Company's business, results of operations and financial condition. In addition,
the Company's future success also depends substantially upon its ability to
attract and retain highly qualified technical and management personnel. The
Company believes there is and will continue to be intense competition for
personnel with experience in the wireless infrastructure development industry.
The loss of significant numbers of the Company's employees would have a material
adverse effect upon the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to retain its
key employees or that it will be able to attract or retain other highly
qualified technical and management personnel in the future.
OTHER UNCERTAINTIES. Other operating, financial or legal risks or uncertainties
are discussed in this Form 10-KSB in specific contexts and the Company is
subject to the financial or legal risks or uncertainties discussed in other
documents filed by the Company with the Securities and Exchange Commission. In
addition, the Company is, of course, also subject to general economic risks, the
risk of interruption in the sources of supply of wireless equipment, the risk of
loss of a major customer, and other risks and uncertainties.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is set forth in Appendix F.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors, nominees for
director and executive officers of the Company:
NAME AGE POSITION
- ---- --- --------
Michael R. Budagher(1) 38 Chairman of the Board, President,
Chief Executive Officer, Treasurer and
Director
Kari A. Young(2) 35 Chief Financial Officer, Treasurer,
Secretary and Director
Dennis K. Hartnett, CPA(3) 43 Chief Accounting Officer, Secretary
and Assistant Treasurer
John D. Emery(4)(5) 49 Director
Terry D. Farmer(2)(3)(4)(5) 47 Acting Secretary and Director
Jon D. Word(4)(5) 35 Director
- ----------------
(1) Mr Budagher is a member of the Stock Option Committee of the
Board of Directors and became Treasurer of the Company following the resignation
of Ms. Young on June 14, 1996.
(2) Kari A. Young resigned as Chief Financial Officer, Treasurer, Secretary and
Director of the Company effective June 14, 1996, at which time Terry D. Farmer
became Acting Secretary of the Company. Until her resignation, Ms. Young was
also a member of the Stock Option Committee of the Board of Directors.
(3) Dennis K. Hartnett, CPA was appointed Secretary and Assistant Treasurer of
the Company effective July 8, 1996, at which time Terry D. Farmer resigned as
Acting Secretary of the Company.
(4) Member of the Compensation Committee of the Board of Directors.
(5) Member of the Audit Committee of the Board of Directors.
Directors hold office until their term expires and until their successors have
been elected and qualified. Officers are appointed annually and serve at the
discretion of the Board of Directors. There are no family relationships among
executive officers or directors and nominees for director of the Company.
Mr. Budagher founded the Company in 1981 and has been Chairman of the Board,
President, Chief Executive Officer and a Director of the Company since its
inception. Mr. Budagher was appointed Treasurer of the Company in June, 1996
follwoing the resignation of Ms. Young as the Company's Chief Financial Officer,
Treasurer, Secretary and a Director, which was effective June 14, 1996. Mr.
Budagher is also a founder, stockholder and President of Specialty Antenna Site
Resources, Inc. ("SASR") and a founder, stockholder and President of Specialty
Constructors Coatings, Inc. ("SCC"). See "ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
Ms. Young resigned as Chief Financial Officer, Treasurer, Secretary and a
Director of the Company effective June 14, 1996. Prior to her resignation, Ms.
Young had been Chief Financial Officer of the Company since 1990 and Secretary,
Treasurer and a Director of the Company since November, 1994. Prior to her
resignation from the Company, Ms. Young was a stockholder in Specialty
Manufacturing, Inc. ("SMI"). See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." Ms. Young received her Bachelor of Business Administration from
the University of New Mexico in 1985 and her Certificate of Public Accountancy
in 1990. Ms. Young is a member of the American Institute of Certified Public
Accountants and the New Mexico Society of Certified Public Accountants.
Mr. Hartnett became employed by the Company as Chief Accounting Officer in June,
1996 and was appointed Secretary and Assistant Treasurer of the Company in July,
1996. From February, 1996 to June, 1996, Mr. Hartnett was Chief Financial
Officer of New Mexico Mortgage Company, Inc. From April, 1995 to February, 1996,
Mr. Hartnett was self-employed as an independent accounting and management
consultant. From March, 1991 to April, 1995, Mr. Hartnett was a Senior Asset
Manager for Northcorp Realty Advisors, Inc.
Mr. Emery has been a Director of the Company since 1994. For more than five
years, Mr. Emery has been president of Corporate Development Center, Inc., a
consulting firm specializing in assisting fast growth companies, arranging
mergers and acquisitions, rendering expert valuations, and providing crisis
management services to businesses. In addition, Mr. Emery has taught
Entrepreneurship, Business Ethics and Organizational Environment, and Business
<PAGE>
Policy and Strategy at the University of New Mexico. Mr. Emery holds a Master of
Business Administration from the Harvard Business School.
Mr. Farmer has been a Director of the Company since 1994. Mr. Farmer has been a
stockholder, officer and director of the Albuquerque law firm of Moses, Dunn,
Farmer & Tuthill, P.C. for more than five years. Mr. Farmer is a past
President of the Albuquerque Lawyers Club and the Young Lawyers Division of the
State Bar of New Mexico. In 1994, Mr. Farmer was elected a fellow in the New
Mexico Bar Foundation. See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Mr. Word has been a Director of the Company since 1994. Mr. Word has been
President and Chief Executive Officer of Contact New Mexico, L.P., a paging and
messaging service provider in New Mexico and Southern Colorado since August,
1992. Mr. Word also is an owner and director of Rural Telco, Inc., a cellular
telephone provider in North Carolina and is President and Director of Word SMR,
Inc. which holds specialized mobile radio licenses in several locations
throughout the United States. In 1991 and 1992, Mr. Word was a consultant in
the wireless telecommunications industry and from 1988 through 1991 he was Vice
President of Operations for Cellular Information Systems, Inc., a wireless
communications company. Mr. Word received a Bachelor of Science Degree from
Texas A&M University in 1984.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and greater
than ten-percent owners are required by the Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on the Company's review of the copies of such forms
received by it, the Company believes that, during the fiscal year ended June
30, 1996, all filing requirements applicable to its officers, directors and
greater than ten-percent owners were complied with except that Michael R.
Budagher failed to timely file one Form 4.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The following table sets forth certain information regarding compensation,
aggregate stock option grants and exercises during 1996 for the Chief Executive
Officer and each executive officer of the Company ("Named Executive Officers")
who received total annual salary and bonus exceeding $100,000 for the last
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
=====================================================================================================
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL SALARY BONUS COMP. AWARD(S) OPTIONS/ PAYOUTS SATION(1)
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
- --------- ---- ------ ----- ------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael R. 1996 $85,000 -- -- -- -- -- --
Budagher 1995 $100,000 -- -- -- -- -- $16,374
(C.E.O.) 1994 $117,645 -- -- -- -- -- --
=====================================================================================================
</TABLE>
(1) Reflects employer contributions under the Specialty Constructors, Inc.
Profit Sharing Plan.
Neither the Chief Executive Officer nor any Named Executive Officer received
personal benefits, securities or property in excess of the lesser of $50,000 or
10% of such individual's reported salary and bonus. Neither the Chief Executive
Officer nor any Named Executive Officer has any employment agreement with the
Company or any of its subsidiaries.
Stock Options
No options to purchase Common Stock of the Company were granted to the Chief
Executive Officer or any Named Executive Officer in the fiscal year ended June
30, 1996. At June 30, 1996, neither the Chief Executive Officer nor any Named
Acceptive Officer held any unexercised options to purchase shares of the
Company's common stock and no such options were exercised during the fiscal year
ended June 30, 1996.
<PAGE>
Compensation of Directors
Directors receive $500 for each Board of Directors meeting attended and
reimbursement for expenses incurred in attending such meetings. In addition,
Directors who serve on committees receive $100 per hour for time spent attending
meetings of such committees.
Benefit Plans
The Amended and Restated 1994 Option Plan
The Company's 1994 Option Plan was approved by the Board of Directors and
Stockholders of the Company on May 16, 1994 to provide for the grant of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 as amended. A total of 100,000 shares of Common Stock was
originally authorized and reserved for issuance under the 1994 Option Plan
subject to adjustment to reflect changes in the Company's capitalization in the
case of a stock split, stock dividend or similar event. In addition, during
fiscal 1996, the Board of Directors approved the amendment and restatement of
the 1994 Option Plan (as amended and restated, the "Amended and Restated 1994
Option Plan") to increase the number of shares authorized for issuance under the
1994 Option Plan from 100,000 to 400,000. The effectiveness of the Amended and
Restated 1994 Option Plan and the grant of certain options under the Amended and
Restated 1994 Option Plan to employees and advisors during fiscal 1996 were made
subject to ratification of the Amended and Restated 1994 Option Plan by the
Company's stockholders. The Board of Directors intends to submit a proposal for
approval and ratification of the Amended and Restated 1994 Option Plan to the
Company's stockholders in connection with the Company's fiscal 1996 Annual
Meeting and the description of such proposal is hereby incorporated by reference
to the Company's definitive proxy statement relating to the Company's fiscal
1996 Annual Meeting. The Amended and Restated 1994 Option Plan is administered
by the Compensation Committee, which consists of the Company's three Outside
Directors. Outside Directors means only those directors of the Company or a
subsidiary of the Company who are not regular salaried employees of either the
Company or a subsidiary as of the date the option is granted. The Compensation
Committee has the sole authority to interpret the Amended and Restated 1994
Incentive Stock Option Plan; provided that, (i) the exercise price of each
option granted under the 1994 Incentive Stock Option Plan may not be less than
the fair market value of the Common Stock on the day of the grant of the option,
(ii) the exercise price must be paid in cash and or stock upon exercise of the
option, (iii) no option may be exercisable for more than 10 years after the date
of grant, and (iv) no option is transferable other than by will or the laws of
descent and distribution. No option is exercisable after an optionee who is an
employee of the Company ceases to be employed by the Company or a subsidiary of
the Company, subject to the right of the Compensation Committee to extend the
exercise period for not more than 90 days following the date of termination of
an optionee's employment. An optionee who was a director or advisor may
exercise his option at any time within 90 days after such optionee's status as a
director or advisor terminates to the extent he was entitled to exercise such
option at the date of termination of his status. If an optionee's employment is
terminated by reason of disability, the Compensation Committee has the authority
to extend the exercise period for not more than one year following the date of
termination of the optionee's employment or service as an advisor or director.
If an optionee dies and shall hold options not fully exercised, such options may
be exercised in whole or in part within one year of the optionee's death by the
executors or administrators of the optionee's estate or by the optionee's heirs.
The vesting period, if any, specified for each option will be accelerated upon
the occurrence of a change of control or threatened change of control of the
Company.
As of September 18, 1996, 29,695 options had been issued and remained
outstanding under the Amended and Restated 1994 Option Plan which issuance was
not subject to further approval by the Company's stockholders. In addition, as
of September 18, 1996, 270,000 options had been issued under the Amended and
Restated 1994 Option Plan subject to approval by the Company's stockholders. If
the Amended and Restated 1994 Option Plan is approved by the Company's
stockholders, then 100,305 options will remain available for issuance under the
Amended and Restated 1994 Option Plan.
A total of 277,500 options were granted under the Amended and Restated 1994
Option Plan during the fiscal year ended June 30, 1996, of which 270,000 options
were granted subject to approval by the Company's stockholders of the Amended
and Restated 1994 Option Plan. As of September 18, 1996, none of the shares of
Common Stock reserved for issuance under the Amended and Restated 1994 Option
Plan had been issued.
The Outside Directors Stock Option Plan
The Outside Directors Stock Option Plan (the "Outside Directors Option Plan")
was approved by the Board of Directors and Stockholders of the Company on May
16, 1994. A total of 50,000 shares of Common Stock has been authorized and
reserved for issuance under the Outside Directors Option Plan, subject to
adjustment to reflect changes in the Company's capitalization in the case of a
stock split, stock dividend or similar event. The Outside Directors Option Plan
is currently administered by the entire Board of Directors. Until June 14,
1996, the Outside Directors Option Plan was administered by the Stock Option
Committee of the Board of Directors which consisted of Michael R. Budagher and
Kari A. Young. Following Ms. Young's resignation on June 14, 1996 as Chief
Financial Officer, Treasurer, Secretary and a Director of the Company, in
accordance with the terms of the Outside Directors Option Plan, the Outside
Directors Option Plan began being administered by the entire Board of Directors.
Currently, the Board of Directors has the sole authority to interpret the
Outside Directors Option Plan to determine the persons to whom options will be
granted, to determine the basis upon which the options will be granted and to
determine the exercise price, duration and other terms of options to be granted
under the Outside Directors Option Plan; provided that,
<PAGE>
(i) the exercise price of each option granted under the Plan may not be less
than the fair market value of the Common Stock on the day of the grant of the
option, (ii) the exercise price must be paid in cash and or stock upon exercise
of the option, (iii) no option may be exercisable for more than 10 years after
the date of grant, and (iv) no option is transferable other than by will or the
laws of descent and distribution. If an optionee's status as an Outside Director
is terminated for any reason other than death, the optionee may exercise his
option at any time within 90 days after such termination to the extent it was
then exercisable. If an optionee dies while an Outside Director and shall not
have fully exercised options granted under the Outside Directors Option Plan,
such options may be exercised in whole or in part within six months of the
optionee's death by the executors or administrators of the optionee's estate or
by the optionee's heirs. The vesting period, if any, specified for each option
will be accelerated upon the occurrence of a change of control or threatened
change of control of the Company.
Options under the Outside Directors Option Plan are granted only to Outside
Directors. Outside Directors shall mean only those directors of the Company or a
subsidiary of the Company who are not regular salaried employees of either the
Company or a subsidiary as of the date the option is granted. As of September
18, 1996, 30,000 options had been issued under the Outside Directors Stock
Option Plan and 20,000 options remain available for issuance under the Outside
Directors Stock Option Plan. No stock options were granted under the Outside
Directors Stock Plan during the fiscal year ended June 30, 1996. As of September
18, 1996, none of the shares of Common Stock reserved for issuance under the
Outside Directors Option Plan had been issued.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of September 18, 1996, the beneficial
ownership of each current director, each nominee for director, each executive
officer ("Named Executive Officer") of the Company who received total annual
salary and bonus exceeding $100,000 for the last fiscal year, all executive
officers and directors as a group, and each stockholder known to management of
the Company to own beneficially more than 5% of the outstanding common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Michael R. Budagher 2,370,000(3) 57.91%
12001 Hwy 14 North
Cedar Crest, New Mexico 87001
Bruce P. Budagher 307,750(4) 7.52%
12001 Hwy 14 North
Cedar Crest, New Mexico 87001
John D. Emery 11,500(5) *
Corporate Development Center, Inc.
1613 University Blvd.
Albuquerque, New Mexico 87102
Terry D. Farmer 10,000(5) *
Moses, Dunn, Farmer & Tuthill, P.C.
612 First Street N.W.
Albuquerque, New Mexico 87102
Jon D. Word 10,000(5) *
10526 City Lights Drive, N.E.
Albuquerque, New Mexico 87111
All directors and executive officers as
a group, including those names above
(4 persons) 2,401,500(6) 58.26%
</TABLE>
- ----------------
*Less than 1.0%
(1) Unless otherwise noted and subject to community property laws, where
applicable, the persons named in the table above have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them.
<PAGE>
(2) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated as
outstanding only when determining the amount and percent owned by such person or
group.
(3) Consists entirely of shares owned by the Budagher Family Limited Partnership
#1 (the "Budagher Family Partnership") of which Michael R. Budagher is the sole
general partner. As the sole general partner of the Budagher Family Partnership,
Michael R. Budagher has sole voting and investment power with respect to these
shares.
(4) Includes 7,500 shares subject to options exercisable within 60 days.
(5) Includes 10,000 shares subject to options exercisable within 60 days
(6) Includes 30,000 shares subject to options exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael R. Budagher owns 52% of SASR. In 1990, SASR acquired approximately 200
microwave towers and related land from Western Union for future sale. SASR has
sold approximately 95% of these towers. The Company did not transact any
business with SASR during fiscal 1996. However, in fiscal 1994 and 1995, the
Company received $13,974 and $1,200, respectively, for services provided to SASR
and, for these respective fiscal years, provided management services to SASR in
exchange for the use of the certain equipment in the amount of $25,700 and NONE.
The relationship with SASR is expected to be negligible in the future.
At September 1, 1996, Michael R. Budagher owned 50% of SCC. SCC provides lead
abatement services and finishes or refinishes metal structures, principally
water towers. During the years ended June 30, 1994, 1995 and 1996, the Company
had paid $17,449, $170,260 and $401,587, respectively, for services provided by
SCC to the Company. This relationship is expected to continue in the indefinite
future.
At September 1, 1996, Bruce P. Budagher, vice president of Specialty
Constructors and the brother of Michael R. Budagher, and Sheril E. Budagher, the
spouse of Michael R. Budagher, owned all of the outstanding stock of SMI. Prior
to August, 1996, Kari A. Young, who resigned in June, 1996 as Chief Financial
Officer, Secretary, Assistant Treasurer and a Director of the Company, owned 1/3
of the outstanding stock of SMI. Ms. Young's SMI stock was repurchased by SMI
as of August, 1996. SMI manufactures devices that ground electric transmission
lines. The Company buys these devices from SMI for use in connection with
certain of the Company's wireless infrastructure building operations. During
the 1994, 1995 and 1996 fiscal years, the Company purchased $6,403, $12,065 and
$13,285, respectively, of SMI products. This relationship is expected to
continue in the indefinite future.
The Company has utilized contract labor from Budagher's Nursery, Inc., a company
wholly owned by William J. Budagher, a brother of Michael R. Budagher and Bruce
P. Budagher. The Company paid $192,493, $126,884 and $92,391 for contract labor
services provided by Budagher's Nursery, Inc. for the years ended June 30, 1994,
1995 and 1996, respectively.
The Company leases its office building from Michael R. Budagher and the spouse
of Michael R. Budagher. The building has 6,400 square feet for which the
Company leases 5,400 square feet and pays $16,800 annually for the space.
Management of the Company believes that the rent for the space is at least as
favorable as could have been negotiated in an arms length transaction. See
"ITEM 2. DESCRIPTION OF PROPERTY." The Company also leases a vehicle from Bruce
P. Budagher.
There are numerous conflicts of interest between the Company and its affiliates,
particularly between the Company and entities that are affiliated with
individuals having executive responsibility for the Company. Typically, these
include the possibility of channeling business to entities other than the
Company that is more appropriately business of the Company, the Company paying
excessive prices to affiliated entities, or the Company subsidizing the
affiliated entity by charging less than market rates.
Management of the Company believes that entities presently owned by affiliates
of the Company operate in businesses that are clearly distinct from those of the
Company. SCC operations are primarily involved in specialized coatings and lead
abatement of elevated water structures. Its activities require skills that are
different from those required by the Company and includes a high level of
environmental risk. To date, the Board of Directors did not want the Company to
be involved with environmental concerns surrounding lead abatement.
The Company has extensive experience in costing the services it provides, and
management believes that its costing to affiliated entities is consistent with
its general costing. Similarly, products or services received by the Company
from affiliated entities have been at substantially the same rates charged other
enterprises. The Company has compared these rates prior to engagement with
independent quotes or with rates charged by other entities. None of the
agreements or arrangements with affiliates are subject to adjustment.
While there has been no independent determination as to the fairness of the
Company's transactions with affiliated entities, the Company's Board of
Directors has reviewed these transactions and has found the terms of these
transactions to be fair and reasonable to the Company. Management believes that
the transactions with affiliated entities that occurred in the past have been
fair and reasonable to the Company and that practical measures have been taken
to assure that any such transactions in the future will be fair and reasonable
to the Company. Nonetheless, almost all transactions between the Company and
affiliated entities
<PAGE>
have been with entities that are controlled by Michael R. Budagher. Michael R.
Budagher controls the Company. As a result of this control, Michael R. Budagher
has the legal power to elect directors and thus elect those that set the
Company's policies, including policies involving related party transactions,
that is, should Michael R. Budagher determine to have a different policy
regarding transactions with affiliates, he has the power to elect directors that
would implement that new policy. Michael R. Budagher has no intent to have any
transaction with an affiliated entity that is not fair and reasonable to the
Company, now or in the future.
Each of Michael R. Budagher and Bruce P. Budagher have represented to the
Company that, notwithstanding his equity or other interest in the businesses
other than the Company described herein, he intends to devote substantially all
of his efforts during regular business hours to the business of the Company.
During the 1996 fiscal year, the Company engaged in transactions with the law
firm with which Mr. Farmer is associated. During the fiscal year ended June 30,
1996, the Company paid $32,665 to the law firm of Moses, Dunn, Farmer and
Tuthill, P.C. Mr. Farmer is a stockholder, officer and director of that firm.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company incorporated by reference to
Exhibit 3.1 to Registration Statement No. 33-79998-D (the
"Registration Statement").
<PAGE>
3.2 By-Laws of the Company incorporated by reference to Exhibit 3.2 of
the Registration Statement.
4.1 Specimen Common Stock Certificate, par value $.01 of the Company
incorporated by reference to Exhibit 3.2 to Registration Statement.
10.1 Lease Agrement dated January 1. 1992, by and among the Company and
Michael R. Budgaher and Sheril E. Budagher incorporated by
reference to Exhibit 10.1 to the Registration Statement.
10.2 Revolving line of Credit between the Company and First State Bank
of Albuquerque incorporated by reference to Exhibit 10.2 to the
Registration Statement.
10.3 Form of Warrant Agreement among the Company, American Stock
Transfer and Trust Company and Thomas James & Associates,
Inc.incorporated by reference to Exhibit 10.2 to the Registration
Statement.
10.4 Amended and Restated 1994 Option Plan of the Company.
10.5 Outside Directors Stock Option Plan incorporated by reference to
Exhibit 10.5 to the Registration Statement.
10.6 Form of Financial Consulting Agreement between the Company and
Thomas James & Asociates, Inc. incorporated by reference to Exhibit
10.6 to the Registration Statement.
21.1 Subsidiaries of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
<PAGE>
Date: September 30, 1996
SPECIALTY TELECONSTRUCTORS, INC.
By: /s/MICHAEL R. BUDAGHER
------------------------------
Michael R. Budagher, Chairman of the
Board, President, Chief Executive
Officer and Treasurer
By: /s/DENNIS K. HARTNETT
------------------------------
Dennis K. Hartnett, Chief Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Company and in the
capacities and on the dates indicated:
By:/s/ MICHAEL R. BUDAGHER Date: September 30, 1996
--------------------------
Michael R. Budagher
Director
By:/s/ JOHN D. EMERY Date: September 30, 1996
--------------------------
John D. Emery
Director
By:/s/ TERRY D. FARMER Date: September 30, 1996
--------------------------
Terry D. Farmer
Director
By:/s/ JON D. WORD Date: September 30, 1996
--------------------------
Jon D. Word
Director
<PAGE>
APPENDIX F
----------
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1996 and 1995
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
KPMG Peat Marwick LLP
6565 Americas Parkway NE, #700
Albuquerque, New Mexico 87190
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Specialty Teleconstructors, Inc.:
We have audited the accompanying consolidated balance sheets of Specialty
Teleconstructors, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Specialty
Teleconstructors, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
August 23, 1996
F-2
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,863,469 4,086,506
Contracts receivable, net 6,443,054 2,550,910
Income tax receivable - 208,121
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 2) 1,063,439 178,600
Other 113,781 -
----------- ---------
Total current assets 10,483,743 7,024,137
Property and equipment, net (notes 3 and 5) 2,157,499 800,465
Other assets, net 153,718 180,783
----------- ---------
$12,794,960 8,005,385
=========== =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 2,154,573 236,238
Short-term notes payable (note 5) 1,900,000 600,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (note 2) 236,464 249,000
Accrued expenses 756,125 223,956
Current installments of notes payable to banks (note 5) 60,792 61,674
Current income taxes (note 7) 467,725 -
Deferred income taxes (note 7) 186,611 217,830
----------- ---------
Total current liabilities 5,762,290 1,588,698
Deferred income taxes (note 7) 381,414 568,024
Notes payable to banks, excluding current installments (note 5) 123,485 125,247
----------- ---------
Total liabilities 6,267,189 2,281,969
----------- ---------
Stockholders' equity:
Common stock, $.01 par value. Authorized 7,500,000 shares;
issued 4,092,308 shares in 1996 and 1995 (notes 6 and 11) 40,923 40,923
Additional paid-in capital 4,166,359 4,166,359
Retained earnings 2,320,489 1,516,134
----------- ---------
Total stockholders' equity 6,527,771 5,723,416
Commitments and contingency (note 4)
----------- ---------
$12,794,960 8,005,385
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Contract revenues earned (note 8) $16,758,629 8,414,590
Cost of revenues earned (notes 2 and 10) 13,986,351 6,989,788
----------- ---------
Gross profit 2,772,278 1,424,802
Selling, general and administrative expenses 1,700,854 1,050,666
----------- ---------
Earnings from operations 1,071,424 374,136
----------- ---------
Other income (deductions):
Gain (loss) on sale of equipment (5,112) 13,392
Interest income 219,126 169,530
Interest expense (26,618) (11,384)
Other, net 17,933 2,963
----------- ---------
205,329 174,501
----------- ---------
Earnings before income taxes 1,276,753 548,637
Income taxes (note 7) 472,398 208,482
----------- ---------
Net earnings $ 804,355 340,155
=========== =========
Earnings per common and common equivalent share $ .20 .09
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Common stock Additional
------------------- paid-in Retained
Shares Amount capital earnings Total
--------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 3,000,000 $30,000 - 1,187,052 1,217,052
Issuance of common stock and
warrants to acquire common
stock 1,000,000 10,000 4,091,472 - 4,101,472
Adjustment for Specialty
Combined Resources, Inc.
pooling of interests (note 11) 92,308 923 24,000 (11,073) 13,850
Noncash compensation - - 50,887 - 50,887
Net earnings - - - 340,155 340,155
--------- ------- --------- --------- ---------
Balance at June 30, 1995 4,092,308 40,923 4,166,359 1,516,134 5,723,416
Net earnings - - - 804,355 804,355
--------- ------- --------- --------- ---------
Balance at June 30, 1996 4,092,308 $40,923 4,166,359 2,320,489 6,527,771
========= ======= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 804,355 340,155
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation of property and equipment 325,190 142,883
Amortization of goodwill 94,418 15,112
Loss (gain) on sale of equipment 5,112 (13,392)
Changes in certain assets and liabilities:
Contracts receivable (3,892,144) (1,204,185)
Income tax receivable 208,121 (178,136)
Costs and estimated earnings in excess of billings on
uncompleted contracts (884,839) 17,000
Other assets (181,134) (195,895)
Trade accounts payable 1,918,335 189,331
Billings in excess of costs and estimated earnings on
uncompleted contracts (12,536) 232,200
Accrued expenses 532,169 61,177
Current income taxes 467,725 (9,800)
Deferred income taxes (217,829) 238,818
----------- ----------
Net cash used in operating activities (833,057) (364,732)
----------- ----------
Cash flows from investing activities:
Proceeds from sales of property and equipment - 16,951
Purchases of property and equipment (1,687,336) (354,943)
----------- ----------
Net cash used in investing activities (1,687,336) (337,992)
----------- ----------
Cash flows from financing activities:
Line of credit with bank, net 1,300,000 600,000
Borrowings from notes payable to bank 88,979 -
Principal payments on notes payable to banks (91,623) (50,080)
Proceeds from sale of common stock and warrants to acquire
common stock - 5,062,500
Payment of registration costs associated with initial public
offering of common stock - (844,166)
----------- ----------
Net cash provided by financing activities 1,297,356 4,768,254
----------- ----------
Net increase (decrease) in cash and
cash equivalents (1,223,037) 4,065,530
Cash and cash equivalents at beginning of year 4,086,506 20,976
----------- ----------
Cash and cash equivalents at end of year $ 2,863,469 4,086,506
=========== =========
</TABLE>
(Continued)
F-6
<PAGE>
2
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $ 26,618 11,384
========= ========
Taxes paid $ - 188,815
========= ========
Noncash transactions - acquisition of vehicles in
exchange for debt $ - 117,000
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Description of Business
-----------------------
Specialty Teleconstructors, Inc. and its wholly owned subsidiaries
(the Company) are located in Cedar Crest, New Mexico. The Company
designs, builds, installs, modifies and maintains (collectively,
"wireless infrastructure building and implementation services")
wireless communications transmitting and receiving facilities
primarily for providers of wireless communications services. In
addition, the Company (i) provides electrical design, engineering,
and testing services (collectively, "wireless infrastructure design
and engineering services") and site acquisition and evaluation
services ("site acquisition services") in connection with the
installation and relocation of wireless communications facilities.
The Company also manufactures and sells unmanned communications
shelters designed to be located adjacent to wireless transmitting
and receiving facilities to house electrical equipment associated
with such facilities. The Company's customers are located throughout
the country.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the financial statements
of Specialty Teleconstructors, Inc. and its wholly owned
subsidiaries, Specialty Constructors, Inc., Specialty Acquisitions,
Inc., Specialty Management, Inc., Specialty Combined Resources, Inc.
and Specialty Fortress, Inc. The Company operates under the name of
Specialty Constructors. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Contract Revenue and Cost Recognition
-------------------------------------
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method. Contract costs include all direct
material and labor costs and those indirect costs related to
contract performance. Selling, general and administrative costs are
charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses
are determined.
"Costs and estimated earnings in excess of billings on uncompleted
contracts" represents revenues recognized in excess of amounts
billed. "Billings in excess of costs and estimated earnings on
uncompleted contracts" represents billings in excess of revenues
recognized.
(d) Statements of Cash Flows
------------------------
For purposes of statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
F-8
<PAGE>
2
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation on property
and equipment is provided on a straight-line basis over the
estimated useful lives of the assets ranging from 3 to 10 years.
(f) Uses of Estimates
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(g) Goodwill
--------
The excess of purchase price over the value of net assets acquired is
included in other assets and is amortized on a straight-line basis
over the estimated benefit period from 2 to 5 years.
The Company periodically evaluates potential impairment of goodwill,
based on the intangible asset which gave rise to the goodwill and
the recoverability period involved. Any impairments would be
recognized in operating results in the period in which a permanent
impairment occurs.
(h) Income Taxes
------------
The Company uses the asset and liability method to account for income
taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Earnings Per Common Share
-------------------------
Earnings per common and common equivalent share are computed by
dividing net income applicable to common stock by the total of the
weighted average number of common shares outstanding and the
additional dilutive effect of stock options during the period. The
dilutive effect of outstanding stock options is computed using the
greater of the closing price or the average market price of the
Company's common stock for the period.
(Continued)
F-9
<PAGE>
3
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The number of shares used in the earnings per share computation at
June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Weighted average common shares
outstanding $4,092,308 3,747,103
Weighted average common share
equivalents 12,028 3,703
---------- ---------
$4,104,336 3,750,806
========== =========
</TABLE>
(j) Financial Instruments
---------------------
Statement of Financial Accounting Standards No. 107, Disclosures about
---------------------------------------------------
Fair Values of Financial Instruments, requires the fair value of
financial instruments be disclosed. The Company's financial
instruments are accounts receivable, accounts payable, and long-term
variable rate debt. The carrying amounts of accounts receivable,
accounts payable, and long-term variable rate debt, because of their
nature, approximate fair value.
(2) Costs and Estimated Earnings on Uncompleted Contracts
-----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 3,837,204 2,334,759
Estimated earnings 2,090,890 1,032,736
Less billings to date (5,101,119) (3,437,895)
$ 826,975 (70,400)
----------- ----------
Included in the accompanying balance sheet:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,063,439 178,600
Billings in excess of costs and estimated
earnings on uncompleted contracts (236,464) (249,000)
----------- ----------
$ 826,975 (70,400)
=========== ==========
</TABLE>
(Continued)
F-10
<PAGE>
4
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Property and Equipment
----------------------
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Vehicles $1,737,789 774,787
Furniture and fixtures 613,383 302,969
Equipment 579,540 207,446
Leasehold improvements 36,347 17,863
---------- ---------
2,967,059 1,303,065
Less accumulated depreciation (809,560) (502,600)
---------- ---------
$2,157,499 800,465
========== =========
</TABLE>
Depreciation expense on property, plant and equipment in 1996 and 1995 was
$325,190 and $142,883, respectively.
(4) Lease Obligations
-----------------
The Company leases its main office building from a shareholder and a
vehicle from an employee of the Company, who is also the shareholder's
brother (see note 10). The Company also leases office space for regional
offices located in Illinois, California, Ohio and Florida from unrelated
parties. These leases are operating leases that expire over the next four
years. The main office building lease contains a renewal option for five
years and requires the Company to pay all executor costs such as
maintenance and insurance. Rental expense for operating leases was
$116,343 and $30,492 for the years ending June 30, 1996 and 1995,
respectively.
Future minimum lease payments under noncancelable operating leases (see
note 10) at June 30, 1996 are:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1997 $63,592
1998 25,954
-------
Total minimum lease payments $89,546
=======
</TABLE>
(Continued)
F-11
<PAGE>
5
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Notes Payable to Banks
----------------------
Notes payable to banks consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
----------- -------
<S> <C> <C>
Short-term notes payable - $2,000,000 line of credit
with bank, interest due monthly at prime rate (8.25% at
June 30, 1996), balance due May 1997; secured by
accounts receivable of a subsidiary $1,900,000 600,000
========== =======
Long-term notes payable:
9.0% note payable in monthly installments of $292,
including interest, with the balance due May
1997; secured by a vehicle $ 5,904 8,720
8.0% note payable in monthly installments of $367,
including interest, with the balance due September
1998; secured by a vehicle 8,618 12,437
8.0% note payable in monthly installments of $773,
including interest, with the balance due January
1999; secured by a vehicle 20,707 28,543
8.2% note payable in monthly installments of $409,
including interest, with the balance due September
1999; secured by a vehicle 13,224 16,803
8.0% note payable in monthly installments of $773,
including interest, with the balance due June
1999; secured by a vehicle 12,153 15,610
8.5% note payable in monthly installments of $1,600,
including interest, with the balance due June 2000;
secured by vehicles 51,277 76,942
8.5% note payable in monthly installments of $1,309,
including interest, with the balance due August 2000;
secured by vehicles 54,163 -
8.0% note payable in monthly installments of $2,790,
including interest, with the balance due June 1996;
secured by vehicles - 27,866
Other 18,231 -
---------- -------
Total long-term notes payable 184,277 186,921
Less current installments 60,792 61,674
---------- -------
Notes payable to banks, excluding
current installments $ 123,485 125,247
========== =======
</TABLE>
(Continued)
F-12
<PAGE>
6
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Subsequent to year end, the Company entered into a new note agreement with
a bank for $586,466 to finance vehicles purchased for cash in fiscal
1996. The new note requires monthly payments of $12,068 with the balance
due July 1999, has a stated interest rate of 8.5 percent and is secured
by vehicles.
The aggregate maturities of notes payable to banks for each of the next
five years, including the July 1996 note payable to bank, are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1997 $150,998
1998 166,687
1999 162,152
2000 289,266
2001 1,640
--------
Total $770,743
========
</TABLE>
The Company's borrowings available under the $2,000,000 secured line of
credit with bank are limited to seventy-five (75) percent of the accounts
receivable balances of one of their wholly owned subsidiaries, which are
less than ninety (90) days delinquent (approximately $5,265,000 at
June 30, 1996).
(6) Stockholders' Equity
--------------------
In November 1994, the Company completed an initial public offering of
1,000,000 shares of common stock and warrants to acquire 500,000 shares
of common stock. Proceeds from the offering, net of commissions and other
related expenses, totaled approximately $4.1 million. The Company intends
to utilize substantially all of the net proceeds of the initial public
offering for the purpose of acquisitions, joint ventures, and other
similar business opportunities. The Company is restricted from using the
proceeds for payment to, or acquisition of, any affiliated entity.
Warrants issued in connection with the public offering are exercisable for
$6.00 per share and expire November 1999. As of June 30, 1996, none of
the warrants outstanding have been exercised.
In connection with the public offering, the Company issued warrants to the
underwriters to purchase 50,000 units, each unit consisting of two shares
of common stock and one warrant to acquire a share of common stock. The
exercise price is 120 percent of the initial public offering price of
$10.125 per unit, or $12.15 per unit. The underwriters' warrants are
exercisable through November 1999. As of June 30, 1996, none of the
warrants have been exercised.
(Continued)
F-13
<PAGE>
7
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company's Board of Directors resolved and the shareholders approved an
Incentive Stock Option Plan. The plan authorized 400,000 shares to be
awarded to officers and key employees of the Company. The plan may be
terminated at any time by the Board of Directors, subject to approval by
the shareholders of the Company. The Company has granted 310,145 options
to acquire shares of common stock under the terms of the plan. The
exercise price of the options range from $3.0625 to $4.5625 per share,
market value at date of grant. The options expire ten years from the date
of grant or upon termination of employment. As of June 30, 1996, 13,365
options granted have expired under the terms of the plan, 40,145 options
are exercisable under the plan, and none of the options granted have been
exercised.
The Company's Board of Directors resolved and the shareholders approved an
Outside Directors' Stock Option Plan. The plan authorized 50,000 shares
to be awarded to nonemployee directors of the Company. The plan will
terminate in May 2004. The Company has granted 30,000 options to acquire
shares of common stock under the terms of the plan. The exercise price
for the options is $3.0625 per share, market value at date of grant. The
directors are limited in the amount of options they can exercise at any
given time to no more than one-third each year over the next three years.
The options expire in May 2004. As of June 30, 1996, none of the options
granted have been exercised.
The Company has reserved 150,000 shares of common stock for issuance
pursuant to the Company's stock option plans.
(7) Income Taxes
------------
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
---------- --------- -------
<S> <C> <C> <C>
Year ended June 30, 1996:
U.S. federal $634,264 (200,168) 434,096
State and local 55,963 (17,661) 38,302
-------- -------- -------
Total $690,227 (217,829) 472,398
======== ======== =======
Year ended June 30, 1995:
U.S. federal $(24,317) 206,978 182,661
State and local (6,019) 31,840 25,821
-------- -------- -------
Total $(30,336) 238,818 208,482
======== ======== =======
</TABLE>
(Continued)
F-14
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following factors:
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Computed "expected" tax $434,096 186,537
State income taxes, net of federal tax benefit 28,159 17,371
Other 10,143 4,574
-------- -------
Total $472,398 208,482
======== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 1996 and 1995 are primarily a result of the Company being a cash
basis taxpayer and are presented below.
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Adjustment for conversion from cash basis to
accrual basis tax reporting $(583,634) (808,882)
Tax credit carryforward - 18,182
Amortization of goodwill for financial reporting
purposes in excess of tax amounts 15,609 4,846
--------- --------
Total deferred income tax liability $(568,025) (785,854)
========= ========
Current deferred income tax liability $(186,611) (217,830)
========= ========
Long-term deferred income tax
liability $(381,414) (568,024)
========= ========
</TABLE>
(8) Major Customers
---------------
Customers comprising 10 percent or greater of the Company's contract
revenues earned are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Bell Atlantic Mobile - 22%
Cellular One 10% 10%
Nextel Communications, Inc./Motorola, Inc. - 11%
PCS Prime Co. 18% -
Sprint Cellular Company 16% 15%
All others 56% 42%
--- ---
100% 100%
=== ===
</TABLE>
The Company generally does not require collateral from its customers.
(Continued)
F-15
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Profit-sharing Plan
-------------------
The Company has a defined contribution plan covering substantially all of
its employees. Contributions are discretionary based on the operating
results of the Company. Contributions to the plan were none and $74,900
for the years ended June 30, 1996 and 1995, respectively.
(10) Related Party Transactions
--------------------------
(a) Leases
------
The Company leases its main office building from Michael R. Budagher
(a shareholder) and a vehicle from an employee of the Company (a
shareholder), who is also Michael R. Budagher's brother (see note
4).
(b) Budagher's Nursery, Inc.
------------------------
The Company uses contract labor provided by Budagher's Nursery, Inc.,
a corporation which is wholly owned by Michael R. Budagher's brother.
The Company incurred $92,391 and $126,884 for contract labor services
provided by Budagher's Nursery, Inc. during the years ended June 30,
1996 and 1995, respectively.
(c) Specialty Constructors Coatings, Inc.
-------------------------------------
The Company uses contract labor services provided by Specialty
Constructors Coatings, Inc. (SCC). SCC is a corporation which is 50
percent owned by Michael R. Budagher. The Company incurred $401,587
and $170,260 for contract labor services provided by SCC during the
years ended June 30, 1996 and 1995, respectively.
(d) Specialty Manufacturing, Inc.
-----------------------------
The Company purchases equipment from Specialty Manufacturing, Inc.
(SM) which is used in certain construction projects. SM is owned 34
percent by Michael R. Budagher's spouse, 33 percent by Michael R.
Budagher's brother and 33 percent by an employee of the Company. The
Company purchases from SM totaled $13,285 and $12,065 during the years
ended June 30, 1996 and 1995, respectively.
(Continued)
F-16
<PAGE>
SPECIALTY TELECONSTRUCTORS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Acquisitions
------------
On April 7, 1995, a wholly owned subsidiary of Specialty Teleconstructors,
Inc. purchased the equipment, inventory, furniture, fixtures, customer
lists and personal property of Vidano Corporation (Vidano) for periodic
cash payments estimated to total $315,660. Vidano, located in Joliet,
Illinois, builds and maintains wireless communication transmitting and
receiving facilities. The future periodic payments are subject to
reduction if employees of Vidano leave employment of the company during
the eighteen-month period following the acquisition. The transaction was
accounted for as a purchase. Goodwill recorded from the purchase was
approximately $121,000 which will be amortized on a straight-line basis
over the estimated benefit period which management believes to be two
years. The Company's consolidated results of operations include the
operations of Vidano since the acquisition date.
On July 1, 1995, Specialty Teleconstructors, Inc. issued 92,308 shares of
restricted common stock of Specialty Teleconstructors, Inc. at a price of
$2.75 per share, determined by the closing price on or about July 1,
1995, in exchange for all of the outstanding shares of Specialty Combined
Resources, Inc. (Specialty Combined). The source of the shares for the
transaction are unissued shares of the Company. Specialty Combined,
located in Laguna Hills, California, provides engineering, design and
coordination services of power, lighting and control systems for
communications, health care, petrochem, institutional and commercial
customers. The Company also entered into a consulting and noncompete
agreement with the former principal of Specialty Combined for a period of
thirty-six (36) months from the date of the acquisition for $75,000.
Additionally, the Company entered into an employment agreement with the
former principal of Specialty Combined to provide services to the Company
for a period of thirty-six (36) months from the date of the acquisition.
The transaction was accounted for as a pooling of interests. Accordingly,
the Company's consolidated financial statements have been restated to
include the operations of Specialty Combined for all periods presented.
F-17
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
OF
SPECIALTY TELECONSTRUCTORS, INC.
1. Purpose of Plan. This Amended and Restated 1994 Stock Option Plan
---------------
("Plan") is intended to encourage ownership of the common stock of SPECIALTY
TELECONSTRUCTORS, INC. ("Company") by certain officers, directors, employees and
advisors of the Company or any Subsidiary or Subsidiaries of the Company (as
hereinafter defined) in order to provide additional incentive for such persons
to promote the success and the business of the Company or its Subsidiaries and
to encourage them to remain in the employ of the Company or its Subsidiaries by
providing such persons an opportunity to benefit from any appreciation of the
common stock of the Company through the issuance of stock options and related
stock appreciation rights to such persons in accordance with the terms of the
Plan. It is further intended that options granted pursuant to this Plan shall
constitute either incentive stock options ("Incentive Options") within the
meaning of Section 422 (formerly Section 422A) of the Internal Revenue Code of
1986, as amended ("Code"), or options which do not constitute Incentive Options
("Nonqualified Options") as determined by the Committee (as hereinafter defined)
at the time of issuance of such options. Incentive Options, Nonqualified
Options and Reload Options (as defined in Section 11 hereof) are herein
sometimes referred to collectively as "Options". As used herein, the term
Subsidiary or Subsidiaries shall mean any corporation (other than the employer
corporation) in an unbroken chain of corporations beginning with the employer
corporation if, at the time of granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
2. Stock Subject to the Plan. Subject to adjustment as provided in Section
-------------------------
14 hereof, there will be reserved for the use upon the exercise of Options to be
granted from time to time under the Plan, an aggregate of four hundred thousand
(400,000) shares of the common stock, no par value, of the Company ("Common
Stock"), which shares in whole or in part shall be authorized, but unissued,
shares of the Common Stock or issued shares of Common Stock which shall have
been reacquired by the Company as determined from time to time by the Board of
Directors of the Company ("Board of Directors"). To determine the number of
shares of Common Stock available at any time for the granting of Options under
the Plan, there shall be deducted from the total number of reserved shares of
Common Stock, the number of shares of Common Stock in respect of which Options
have been granted pursuant to the Plan which remain outstanding or which have
been exercised. If and to the extent that any Option to purchase reserved
shares shall not be exercised by the optionee for any reason or if such Option
to purchase shall terminate as provided herein, such shares which have not been
so purchased hereunder shall again become available for the purposes of the Plan
unless the Plan shall have been terminated, but such unpurchased shares shall
not be deemed to increase the aggregate number of shares specified above to be
reserved for purposes of the Plan (subject to adjustment as provided in Section
14 hereof).
3. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by a Compensation Committee
-------
("Committee") appointed by the Board of Directors, which Committee shall
consist of not less than two (2) members of the Board of Directors who are
not eligible to participate in the Plan, and have not, for a period of at
least one (1) year prior thereto been eligible to
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 1
<PAGE>
participate in the Plan, except that if at any time there shall be less
than two (2) directors who are qualified to serve on the Committee, then
the Plan shall be administered by the full Board of Directors. All
references in this Plan to the Committee shall be deemed to refer instead
to the full Board of Directors at any time there is not a committee of two
(2) members qualified to act hereunder. The Board of Directors may from
time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however
caused, in the Committee. If the Board of Directors does not designate a
Chairman of the Committee, the Committee shall select one of its members as
its Chairman. The Committee shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall
constitute a quorum. Any action of the Committee shall be taken by a
majority vote of its members at a meeting at which a quorum is present.
Notwithstanding the preceding, any action of the Committee may be taken
without a meeting by a written consent signed by all of the members, and
any action so taken shall be deemed fully as effective as if it had been
taken by a vote of the members present in person at the meeting duly called
and held. The Committee may appoint a Secretary, shall keep minutes of its
meetings, and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
The Committee shall have the sole authority and power, subject to the
express provisions and limitations of the Plan, to construe the Plan and
option agreements granted hereunder, and to adopt, prescribe, amend, and
rescind rules and regulations relating to the Plan, and to make all
determinations necessary or advisable for administering the Plan,
including, but not limited to, (i) who shall be granted Options under the
Plan, (ii) the term of each Option, (iii) the number of shares covered by
such Option, (iv) whether the Option shall constitute an Incentive Option
or a Nonqualified Option or a Reload Option, (v) the exercise price for the
purchase of the shares of the Common Stock covered by the Option, (vi) the
period during which the Option may be exercised, (vii) whether the right to
purchase the number of shares covered by the Option shall be fully vested
on issuance of the Option so that such shares may be purchased in full at
one time or whether the right to purchase such shares shall become vested
over a period of time so that such shares may only be purchased in
installments, and (viii) the time or times at which Options shall be
granted. The Committee's determinations under the Plan, including the
above enumerated determinations, need not be uniform and may be made by it
selectively among the persons who receive, or are eligible to receive,
Options under the Plan, whether or not such persons are similarly situated.
The interpretation by the Committee of any provision of the Plan or of
any option agreement entered into hereunder with respect to any Incentive
Option shall be in accordance with Section 422 of the Code and the
regulations issued thereunder, as such section or regulations may be
amended from time to time, in order that the rights granted hereunder and
under said option agreements shall constitute "Incentive Stock Options"
within the meaning of such section. The interpretation and construction by
the Committee of any provision of the Plan or of any Option granted
hereunder shall be final and conclusive, unless otherwise determined by the
Board of Directors. No member of the Board of Directors or the Committee
shall be liable for any action or determination made in good faith with
respect to the Plan or any Option granted under it. Upon issuing an Option
under the Plan, the Committee shall report to the Board of Directors the
name of the person granted the Option, whether the Option is an Incentive
Option or a Nonqualified Option, the number of shares of Common Stock
covered by the Option, and the terms and conditions of such Option.
(b) Changes in Law Applicable. If the laws relating to Incentive
-------------------------
Options or Nonqualified Options are changed, altered or amended during
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 2
<PAGE>
the term of the Plan, the Board of Directors shall have full authority and
power to alter or amend the Plan with respect to Incentive Options or
Nonqualified Options, respectively, to conform to such changes in the law
without the necessity of obtaining further stockholder approval, unless the
changes require such approval.
4. Types of Awards Under the Plan. Awards under the Plan may be in the form
------------------------------
of either Options, alternate stock appreciation rights (as described in Section
10 hereof), or a combination thereof.
5. Persons to Whom Options Shall be Granted.
----------------------------------------
(a) Nonqualified Options. Nonqualified Options shall be granted only to
--------------------
officers, directors (other than "Outside Directors" of the Company or a
Subsidiary [as hereinafter defined]), employees and advisors of the Company
or a Subsidiary who, in the judgment of the Committee, are responsible for
or contribute to the management or success of the Company or a Subsidiary
and who, at the time of the granting of the Nonqualified Options, are
either officers, directors (other than Outside Directors), employees or
advisors of the Company or a Subsidiary. As used herein, the term "Outside
Director" shall mean any director of the Company or a Subsidiary who is not
an employee of the Company or a Subsidiary.
(b) Incentive Options. Incentive Options shall be granted only to
-----------------
employees of the Company or a Subsidiary who, in the judgment of the
Committee, are responsible for or contribute to the management or success
of the Company or a Subsidiary and who, at the time of the granting of the
Incentive Option are either an employee of the Company or a Subsidiary.
Subject to the provisions of Section 8(g) hereof, no individual shall be
granted an Incentive Option who, immediately before such Incentive Option
was granted, would own more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Company ("10%
Stockholder").
6. Factors to Be Considered in Granting Options. In making any
--------------------------------------------
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers, directors,
employees, or advisors, their current and potential contributions to the success
of the Company or a Subsidiary, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
7. Time of Granting Options. Neither anything contained in the Plan or in
------------------------
any resolution adopted or to be adopted by the Board of Directors or the
Stockholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an
Option shall be effected only when a written Option Agreement acceptable in form
and substance to the Committee, subject to the terms and conditions hereof
including those set forth in Section 8 hereof, shall have been duly executed and
delivered by or on behalf of the Company and the person to whom such Option
shall be granted. No person shall have any rights under the Plan until such
time, if any, as a written Option Agreement shall have been duly executed and
delivered as set forth in this Section 7.
8. Terms and Conditions of Options. All Options granted pursuant to this
-------------------------------
Plan must be granted within ten (10) years from the date the Plan is adopted by
the Board of Directors of the Company. Each Option Agreement governing an
Option granted hereunder shall be subject to at least the following terms and
conditions, and shall contain such other terms and conditions, not inconsistent
therewith, that the Committee shall deem appropriate:
(a) Number of Shares. Each Option shall state the number of shares of
----------------
Common Stock which it represents.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 3
<PAGE>
(b) Type of Option. Each Option shall state whether it is intended to
--------------
be an Incentive Option or a Nonqualified Option.
(c) Option Period.
-------------
(1) General. Each Option shall state the date upon which it is
-------
granted. Each Option shall be exercisable in whole or in part during
such period as is provided under the terms of the Option subject to
any vesting period set forth in the Option, but in no event shall an
Option be exercisable either in whole or in part after the expiration
of ten (10) years from the date of grant; provided, however, if an
Incentive Option is granted to a 10% Stockholder, such Incentive
Option shall not be exercisable more than five (5) years from the date
of grant thereof.
(2) Termination of Employment. Except as otherwise provided in
-------------------------
case of Disability (as hereinafter defined), death or Change of
Control (as hereinafter defined), no Option shall be exercisable after
an optionee who is an employee of the Company or a Subsidiary ceases
to be employed by the Company or a Subsidiary as an employee;
provided, however, that the Committee shall have the right in its sole
discretion, but not the obligation, to extend the exercise period for
not more than three (3) months following the date of termination of
such optionee's employment; provided further, however, that no Option
shall be exercisable after the expiration of ten (10) years from the
date it is granted and provided further, no Incentive Option granted
to a 10% Stockholder shall be exercisable after the expiration of five
(5) years from the date it is granted.
(3) Cessation of Service as Director or Advisor. In the event an
-------------------------------------------
optionee who was a director or advisor of the Company or a Subsidiary
ceases to be a director or advisor of the Company or a Subsidiary for
any reason, other than Disability or death, prior to the full exercise
of the Option, such optionee may exercise his Option at any time
within ninety (90) days after such optionee's status as a director or
advisor of the Company or a Subsidiary is so terminated to the extent
he was entitled to exercise such Option at the date such optionee's
status as a director or advisor of the Company or a Subsidiary
terminated; provided, however, that no Option shall be exercisable
after the expiration of ten (10) years from the date it is granted.
(4) Disability. If an optionee's employment is terminated by
----------
reason of the permanent and total Disability of such optionee or if an
optionee who is a director or advisor of the Company or a Subsidiary
ceases to serve as a director or advisor by reason of the permanent
and total Disability of such optionee, the Committee shall have the
right in its sole discretion, but not the obligation, to extend the
exercise period for not more than one (1) year following the date of
termination of the optionee's employment or the date such optionee
ceases to be a director or advisor of the Company or a Subsidiary, as
the case may be, subject to the condition that no Option shall be
exercisable after the expiration of ten (10) years from the date it is
granted and subject to the further condition that no Incentive Option
granted to a 10% Stockholder shall be exercisable after the expiration
of five (5) years from the date it is granted. For purposes of this
Plan, the term "Disability" shall mean the inability of the optionee
to fulfill such optionee's obligations to the Company or a Subsidiary
by reason of any physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for
a continuous period of not less than twelve (12) months
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 4
<PAGE>
as determined by a physician acceptable to the Committee in its sole
discretion.
(5) Death. If an optionee dies while in the employ of the Company
-----
or a Subsidiary, or while serving as a director or advisor of the
Company or a Subsidiary, and shall not have fully exercised Options
granted pursuant to the Plan, such Options may be exercised in whole
or in part at any time within one (1) year after the optionee's death,
by the executors or administrators of the optionee's estate or by any
person or persons who shall have acquired the Options directly from
the optionee by bequest or inheritance, but only to the extent that
the optionee was entitled to exercise such Option at the date of such
optionee's death, subject to the condition that no Option shall be
exercisable after the expiration of ten (10) years from the date it is
granted and subject to the further condition that no Incentive Option
granted to a 10% Stockholder shall be exercisable after the expiration
of five (5) years from the date it is granted.
(6) Acceleration and Exercise Upon Change of Control.
------------------------------------------------
Notwithstanding the preceding provisions of this Section 8(c), if any
Option granted under the Plan provides for either (a) an incremental
vesting period whereby such Option may only be exercised in
installments as such incremental vesting period is satisfied or (b) a
delayed vesting period whereby such Option may only be exercised after
the lapse of a specified period of time, such as after the expiration
of one (1) year, such vesting period shall be accelerated upon the
occurrence of a Change of Control (as hereinafter defined) of the
Company, or a threatened Change of Control of the Company as
determined by the Committee, so that such Option shall thereupon
become exercisable immediately in part or its entirety by the holder
thereof, as such holder shall elect. For the purposes of this Plan, a
"Change of Control" shall be deemed to have occurred if:
(i) Any "person", including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange Act
of 1934 ("Exchange Act") and the Rules and Regulations
promulgated thereunder, is or becomes, through one or a series of
related transactions or through one or more intermediaries, the
beneficial owner, directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of
the Company's then outstanding securities, other than a person
who is such a beneficial owner on the effective date of the Plan
and any affiliate of such person;
(ii) As a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions ("Transaction"), the persons who were Directors of
the Company before the Transaction shall cease to constitute a
majority of the Board of Directors of the Company or any
successor to the Company;
(iii) Following the effective date of the Plan, the Company is
merged or consolidated with another corporation and as a result
of such merger or consolidation less than 40% of the outstanding
voting securities of the surviving or resulting corporation shall
then be owned in the aggregate by the former stockholders of the
Company, other than (x) any party to such merger or
consolidation, or (y) any affiliates of any such party;
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 5
<PAGE>
(iv) A tender offer or exchange offer is made and consummated
for the ownership of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding voting securities; or
(v) The Company transfers more than 50% of its assets, or the
last of a series of transfers result in the transfer of more than
50% of the assets of the Company, to another corporation that is
not a wholly-owned corporation of the Company. For purposes of
this subsection 8(c)(6)(v), the determination of what constitutes
more than 50% of the assets of the Company shall be determined
based on the sum of the values attributed to (i) the Company's
real property as determined by an independent appraisal thereof,
and (ii) the net book value of all other assets of the Company,
each taken as of the date of the Transaction involved.
In addition, upon a Change of Control, any Options previously
granted under the Plan to the extent not already exercised may be
exercised in whole or in part either immediately or at any time during
the term of the Option as such holder shall elect.
(d) Option Prices.
-------------
(1) Nonqualified Options. The purchase price or prices of
--------------------
the shares of the Common Stock which shall be offered to any
person under the Plan and covered by a Nonqualified Option shall
be the price determined by the Committee at the time of granting
of the Nonqualified Option, which price may be less than, equal
to or higher than one hundred percent (100%) of the fair market
value of the Common Stock at the time of granting the
Nonqualified Option.
(2) Incentive Options. The purchase price or prices of the
-----------------
shares of the Common Stock which shall be offered to any person
under the Plan and covered by an Incentive Option shall be one
hundred percent (100%) of the fair market value of the Common
Stock at the time of granting the Incentive Option or such higher
purchase price as may be determined by the Committee at the time
of granting the Incentive Option; provided, however, if an
Incentive Option is granted to a 10% Stockholder, the purchase
price of the shares of the Common Stock of the Company covered by
such Incentive Option may not be less than one hundred ten
percent (110%) of the fair market value of such shares on the day
the Incentive Option is granted.
(3) Determination of Fair Market Value. During such time as
----------------------------------
the Common Stock of the Company is not listed upon an established
stock exchange, the fair market value per share shall be deemed
to be the closing sales price of the Common Stock on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") on the day the Option is granted, as reported by
NASDAQ, if the Common Stock is so quoted, and if not so quoted,
the mean between dealer "bid" and "ask," prices of the Common
Stock in the New York over-the-counter market on the day the
Option is granted, as reported by the National Association of
Securities Dealers, Inc. If the Common Stock is listed upon an
established stock exchange or exchanges, such fair market value
shall be deemed to be the highest closing price of the Common
Stock on such stock exchange or exchanges on the day the Option
is granted or, if no sale of the Common Stock of the Company
shall have been made on established stock exchange on such day,
on the next preceding day on which there was a sale of such
stock.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 6
<PAGE>
If there is no market price for the Common Stock, then the Board
of Directors and the Committee may, after taking all relevant
facts into consideration, determine the fair market value of the
Common Stock.
(e) Exercise of Options. To the extent that a holder of an Option has a
-------------------
current right to exercise, the Option may be exercised from time to time by
written notice to the Company at its principal place of business. Such
notice shall state the election to exercise the Option, the number of whole
shares in respect of which it is being exercised, shall be signed by the
person or persons so exercising the Option, and shall contain any
investment representation required by Section 8(i) hereof. Such notice
shall be accompanied by payment of the full purchase price of such shares
and by the Option Agreement evidencing the Option. In addition, if the
Option shall be exercised, pursuant to Section 8(c)(4) or Section 8(c)(5)
hereof, by any person or persons other than the optionee, such notice shall
also be accompanied by appropriate proof of the right of such person or
persons to exercise the Option. The Company shall deliver a certificate or
certificates representing such shares as soon as practicable after the
aforesaid notice and payment of such shares shall be received. The
certificate or certificates for the shares as to which the Option shall
have been so exercised shall be registered in the name of the person or
persons so exercising the Option. In the event the Option shall not be
exercised in full, the Secretary of the Company shall endorse or cause to
be endorsed on the Option the number of shares which has been exercised
thereunder and the number of shares that remain exercisable under the
Option and return such Option Agreement to the holder thereof.
(f) Nontransferability of Options. An Option granted pursuant to the
-----------------------------
Plan shall be exercisable only by the optionee or the optionee's court
appointed guardian as set forth in Section 8(c)(4) hereof during the
optionee's lifetime and shall not be assignable or transferable by the
optionee otherwise than by Will or the laws of descent and distribution.
An Option granted pursuant to the Plan shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise other
than by Will or the laws of descent and distribution) and shall not be
subject to execution, attachment, or similar process. Any attempted
transfer, assignment, pledge, hypothecation, or other disposition of any
Option or of any rights granted thereunder contrary to the foregoing
provisions of this Section 8(f), or the levy of any attachment or similar
process upon an Option or such rights, shall be null and void.
(g) Limitations on 10% Stockholders. No Incentive Option may be granted
-------------------------------
under the Plan to any 10% Stockholder unless (i) such Incentive Option is
granted at an option price not less than one hundred ten percent (110%) of
the fair market value of the shares on the day the Incentive Option is
granted and (ii) such Incentive Option expires on a date not later than
five (5) years from the date the Incentive Option is granted.
(h) Limits on Vesting of Incentive Options. An individual may be
--------------------------------------
granted one or more Incentive Options, provided that the aggregate fair
market value (as determined at the time such Incentive Option is granted)
of the stock with respect to which Incentive Options are exercisable for
the first time by such individual during any calendar year shall not exceed
$100,000. To the extent the $100,000 limitation in the preceding sentence
is exceeded, such option shall be treated as an option which is not an
Incentive Option.
(i) Compliance with Securities Laws. The Plan and the grant and
-------------------------------
exercise of the rights to purchase shares hereunder, and the Company's
obligations to sell and deliver shares upon the exercise of rights to
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 7
<PAGE>
purchase shares, shall be subject to all applicable federal and state laws,
rules and regulations, and to such approvals by any regulatory or
governmental agency as may, in the opinion of counsel for the Company, be
required, and shall also be subject to all applicable rules and regulations
of any stock exchange upon which the Common Stock of the Company may then
be listed. At the time of exercise of any Option, the Company may require
the optionee to execute any documents or take any action which may be then
necessary to comply with the Securities Act of 1933, as amended
("Securities Act"), and the rules and regulations promulgated thereunder,
or any other applicable federal or state laws regulating the sale and
issuance of securities, and the Company may, if it deems necessary, include
provisions in the stock option agreements to assure such compliance. The
Company may, from time to time, change its requirements with respect to
enforcing compliance with federal and state securities laws, including the
request for and enforcement of letters of investment intent, such
requirements to be determined by the Company in its judgment as necessary
to assure compliance with said laws. Such changes may be made with respect
to any particular Option or stock issued upon exercise thereof. Without
limiting the generality of the foregoing, if the Common Stock issuable upon
exercise of an Option granted under the Plan is not registered under the
Securities Act, the Company at the time of exercise will require that the
registered owner execute and deliver an investment representation agreement
to the Company in form acceptable to the Company and its counsel, and the
Company will place a legend on the certificate evidencing such Common Stock
restricting the transfer thereof, which legend shall be substantially as
follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN
ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY
NOT BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (ii) THE COMPANY SHALL HAVE RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT
REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER.
(j) Additional Provisions. The Option Agreements authorized under the
---------------------
Plan shall contain such other provisions as the Committee shall deem
advisable, including, without limitation, restrictions upon the exercise of
the Option. Any such Option Agreement with respect to an Incentive Option
shall contain such limitations and restrictions upon the exercise of the
Incentive Option as shall be necessary in order that the option will be an
"Incentive Stock Option" as defined in Section 422 of the Code.
9. Medium and Time of Payment. The purchase price of the shares of the
--------------------------
Common Stock as to which the Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of the Option, (ii) by tendering to
the Company shares of the Company's Common Stock having a fair market value (as
of the date of receipt of such shares by the Company) equal to the purchase
price for the number of shares of Common Stock purchased, or (iii) partly in
cash and partly in shares of the Company's Common Stock valued at fair market
value as of the date of receipt of such shares by the Company. Cash payment for
the shares of the Common Stock purchased upon exercise of the Option shall be in
the form of either a cashier's check, certified check or money order. Personal
checks may be submitted, but will not be considered as payment for the shares of
the Common Stock purchased and no certificate for such shares will be issued
until the personal check clears in normal banking
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 8
<PAGE>
channels. If a personal check is not paid upon presentment by the Company, then
the attempted exercise of the Option will be null and void. In the event the
optionee tenders shares of the Company's Common Stock in full or partial payment
for the shares being purchased pursuant to the Option, the shares of Common
Stock so tendered shall be accompanied by fully executed stock powers endorsed
in favor of the Company with the signature on such stock power being guaranteed.
If an optionee tenders shares, such optionee assumes sole and full
responsibility for the tax consequences, if any, to such optionee arising
therefrom, including the possible application of Code Section 424(c), or its
successor Code section, which negates any nonrecognition of income rule with
respect to such transferred shares, if such transferred shares have not been
held for the minimum statutory holding period to receive preferential tax
treatment.
10. Alternate Stock Appreciation Rights.
-----------------------------------
(a) Award of Alternate Stock Rights. Concurrently with or subsequent to
-------------------------------
the award of any Option to purchase one or more shares of Common Stock, the
Committee may in its sole discretion, subject to the provisions of the Plan
and such other terms and conditions as the Committee may prescribe, award
to the optionee with respect to each share of Common Stock covered by an
Option ("Related Option"), a related alternate stock appreciation right
("SAR"), permitting the optionee to be paid the appreciation on the Related
Option in lieu of exercising the Related Option. A SAR granted with
respect to an Incentive Option must be granted together with the Related
Option. A SAR granted with respect to a Nonqualified Option may be granted
together with or subsequent to the grant of such Related Option.
(b) Alternate Stock Rights Agreement. Each SAR shall be on such terms
--------------------------------
and conditions not inconsistent with this Plan as the Committee may
determine and shall be evidenced by a written agreement executed by the
Company and the optionee receiving the Related Option.
(c) Exercise. An SAR may be exercised only if and to the extent that
--------
its Related Option is eligible to be exercised on the date of exercise of
the SAR. To the extent that a holder of a SAR has a current right to
exercise, the SAR may be exercised from time to time by written notice to
the Company at its principal place of business. Such notice shall state
the election to exercise the SAR, the number of shares in respect of which
it is being exercised, shall be signed by the person so exercising the SAR
and shall be accompanied by the agreement evidencing the SAR and the
Related Option. In the event the SAR shall not be exercised in full, the
Secretary of the Company shall endorse or cause to be endorsed on the SAR
and the Related Option the number of shares which have been exercised
thereunder and the number of shares that remain exercisable under the SAR
and the Related Option and return such SAR and Related Option to the
holder thereof.
(d) Amount of Payment. The amount of payment to which an optionee shall
-----------------
be entitled upon the exercise of each SAR shall be equal to 100% of the
amount, if any, by which the fair market value of a share of Common Stock
on the exercise date exceeds the fair market value of a share of Common
Stock on the date the Option related to said SAR was granted or became
effective, as the case may be; provided, however, the Company may, in its
sole discretion, withhold from such cash payment any amount necessary to
satisfy the Company's obligation for withholding taxes with respect to such
payment. For this purpose, the fair market value of a share of Common
Stock shall be determined as set forth in Section 8(d) hereof.
(e) Form of Payment. The amount payable by the Company to an optionee
---------------
upon exercise of a SAR may be paid in shares of Common Stock, cash or a
combination thereof. The number of shares of Common Stock to be paid to an
optionee upon such optionee's exercise of SAR shall be
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 9
<PAGE>
determined by dividing the amount of payment determined pursuant to Section
10(d) hereof by the fair market value of a share of Common Stock on the
exercise date of such SAR. For purposes of this Plan, the exercise date of
a SAR shall be the date the Company receives written notification from the
optionee of the exercise of the SAR in accordance with the provisions of
Section 10(c) hereof. As soon as practicable after exercise, the Company
shall either deliver to the optionee the amount of cash due such optionee
or a certificate or certificates for such shares of Common Stock. All such
shares shall be issued with the rights and restrictions specified herein.
(f) Termination of SAR. Except as otherwise provided in case of
------------------
Disability (as defined in Section 8(c)(4) hereof) or death, no SAR shall be
exercisable after an optionee ceases to be an employee, director or advisor
of the Company or Subsidiary; provided, however, that the Committee shall
have the right in its sole discretion, but not the obligation, to extend
the exercise period for not more than three (3) months following the date
such optionee ceases to be an employee, director or advisor of the Company
or a Subsidiary; provided further, that the Committee may not extend the
period during which an optionee may exercise a SAR for a period greater
than the period during which an optionee may exercise the Related Option.
If an optionee's position as an employee, director or advisor of the
Company is terminated due to the Disability or death of such optionee, the
Committee shall have the right, in its sole discretion, but not the
obligation, to extend the exercise period applicable to the SAR for a
period not to exceed the period in which the optionee may exercise the
Option related to said SAR as set forth in Sections 8(c)(4) and 8(c)(5)
hereof, respectively.
(g) Effect of Exercise of SAR. The exercise of any SAR shall cancel and
-------------------------
terminate the right to purchase an equal number of shares covered by the
Related Option.
(h) Effect of Exercise of Related Option. Upon the exercise or
------------------------------------
termination of any Related Option, the SAR with respect to such Related
Option shall terminate to the extent of the number of shares of Common
Stock as to which the Related Option was exercised or terminated.
(i) Nontransferability of SAR. A SAR granted pursuant to this Plan
-------------------------
shall be exercisable only by the optionee or the optionee's court appointed
guardian as set forth in Section 8(c)(4) hereof during the optionee's
lifetime and, subject to the provisions of Section 10(f) hereof, shall not
be assignable or transferable by the optionee. A SAR granted pursuant to
the Plan shall not be assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise) and shall not be subject to execution,
attachment, or similar process. Any attempted transfer, assignment,
pledge, hypothecation, or other disposition of any SAR or of any rights
granted thereunder contrary to the foregoing provisions of this Section
10(i), or the levy of any attachment or similar process upon a SAR or such
rights, shall be null and void.
11. Reload Options.
--------------
(a) Authorization of Reload Options. Concurrently with the award of
-------------------------------
Nonqualified Options and/or the award of Incentive Options to any
participant in the Plan, the Committee may authorize reload options
("Reload Options") to purchase for cash or shares that number of shares of
Common Stock equal to the sum of:
(1) The number of shares of Common Stock used to exercise the
underlying Nonqualifying Option or Incentive Option; and
(2) To the extent authorized by the Committee, the number of
shares of Common Stock used to satisfy any tax withholding
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 10
<PAGE>
requirement incident to the exercise of the underlying Nonqualifying
Option or Incentive Options.
The grant of a Reload Option will become effective upon the exercise
of the underlying Nonqualifying Option, Incentive Option or Reload Option
through the use of shares of Common Stock held by the optionee for at least
12 months. Notwithstanding the fact that the underlying option may be an
Incentive Option, a Reload Option is not intended to qualify as an
"incentive stock option" under Section 422 of the Code.
(b) Reload Option Amendment. Each Option Agreement shall state whether
-----------------------
the Committee has authorized Reload Options with respect to the underlying
Nonqualifying Option and/or Incentive Option. Upon the exercise of an
underlying Option or Incentive Option, the Reload Option will be evidenced
by an amendment to the underlying Option Agreement.
(c) Reload Option Price. The option price per share of Common Stock
-------------------
deliverable upon the exercise of a Reload Option shall be the fair market
value of a share of Common Stock on the date the grant of the Reload Option
becomes effective.
(d) Term and Exercise. Each Reload Option is fully exercisable six
-----------------
months from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the underlying Nonqualifying
Option and/or Incentive Option.
(e) Termination of Employment. No additional Reload Options shall be
-------------------------
granted to optionees when Nonqualifying Options, Incentive Option and/or
Reload Options are exercised pursuant to the terms of this Plan following
termination of the optionee's employment.
(f) Applicability of Other Sections. To the extent not inconsistent
-------------------------------
with the foregoing provisions of this Section, the other Sections of this
Plan pertaining to Options, including Sections 5, 8, and 9, are
incorporated herein by this reference thereto as through fully set forth
herein.
12. Rights as a Stockholder. The holder of an Option or a SAR shall have no
-----------------------
rights as a stockholder with respect to the shares covered by the Option or SAR
until the due exercise of the Option, Related Option, or SAR and the date of
issuance of one or more stock certificates to such holder for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
provided in Section 14 hereof.
13. Optionee's Agreement to Serve. Each employee receiving an Option shall,
-----------------------------
as one of the terms of the Option Agreement agree that such employee will remain
in the employ of the Company or Subsidiary for a period of at least one (1) year
from the date on which the Option shall be granted to such employee; and that
such employee will, during such employment, devote such employee's entire time,
energy, and skill to the service of the Company or a Subsidiary as may be
required by the management thereof, subject to vacations, sick leaves, and
military absences. Such employment, subject to the provisions of any written
contract between the Company or a Subsidiary and such employee, shall be at the
pleasure of the Board of Directors of the Company or a Subsidiary, and at such
compensation as the Company or a Subsidiary shall reasonably determine. Any
termination of such employee's employment during the period which the employee
has agreed pursuant to the foregoing provisions of this Section 13 to remain in
employment that is either for cause or voluntary on the part of the employee
shall be deemed a violation by the employee of such employee's agreement. In
the event of such violation, any Option or Options held by such employee, to the
extent not theretofore exercised, shall forthwith terminate, unless otherwise
determined by the Committee. Notwithstanding the preceding, neither the action
of the Company in establishing the Plan nor any
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 11
<PAGE>
action taken by the Company, a Subsidiary or the Committee under the provisions
hereof shall be construed as granting the optionee the right to be retained in
the employ of the Company or a Subsidiary, or to limit or restrict the right of
the Company or a Subsidiary, as applicable, to terminate the employment of any
employee of the Company or a Subsidiary, with or without cause.
14. Adjustments on Changes in Capitalization.
----------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
Stockholders of the Company, the number of shares of Common Stock covered
by the Plan, the number of shares of Common Stock covered by each
outstanding Option, and the exercise price per share thereof specified in
each such Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of such shares effected without receipt of
consideration by the Company after the date the Option is granted, so that
upon exercise of the Option, the optionee shall receive the same number of
shares the optionee would have received had the optionee been the holder of
all shares subject to such optionee's outstanding Option immediately before
the effective date of such change in the number of issued shares of the
Common Stock of the Company.
(b) Reorganization, Dissolution or Liquidation. Subject to any required
------------------------------------------
action by the Stockholders of the Company, if the Company shall be the
surviving corporation in any merger or consolidation, each outstanding
Option shall pertain to and apply to the securities to which a holder of
the number of shares of Common Stock subject to the Option would have been
entitled. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, shall
cause each outstanding Option to terminate as of a date to be fixed by the
Committee (which date shall be as of or prior to the effective date of any
such dissolution or liquidation or merger or consolidation); provided, that
not less than thirty (30) days written notice of the date so fixed as such
termination date shall be given to each optionee, and each optionee shall,
in such event, have the right, during the said period of thirty (30) days
preceding such termination date, to exercise such optionee's Option in
whole or in part in the manner herein set forth.
(c) Change in Par Value. In the event of a change in the Common Stock
-------------------
of the Company as presently constituted, which change is limited to a
change of all of its authorized shares with par value into the same number
of shares with a different par value or without par value, the shares
resulting from any change shall be deemed to be the Common Stock within the
meaning of the Plan.
(d) Notice of Adjustments. To the extent that the adjustments set forth
---------------------
in the foregoing paragraphs of this Section 14 relate to stock or
securities of the Company, such adjustments, if any, shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each Incentive Option granted pursuant to this
Plan shall not be adjusted in a manner that causes the Incentive Option to
fail to continue to qualify as an "Incentive Stock Option" within the
meaning of Section 422 of the Code. The Company shall give timely notice
of any adjustments made to each holder of an Option under this Plan and
such adjustments shall be effective and binding on the optionee.
(e) Effect Upon Holder of Option. Except as hereinbefore expressly
----------------------------
provided in this Section 14, the holder of an Option shall have no rights
by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class by
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 12
<PAGE>
reason of any dissolution, liquidation, merger, reorganization, or
consolidation, or spin-off of assets or stock of another corporation, and
any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to the Option. Without limiting the
generality of the foregoing, no adjustment shall be made with respect to
the number or price of shares subject to any Option granted hereunder upon
the occurrence of any of the following events:
(1) The grant or exercise of any other options which may be
granted or exercised under any qualified or nonqualified stock option
plan or under any other employee benefit plan of the Company whether
or not such options were outstanding on the date of grant of the
Option or thereafter granted;
(2) The sale of any shares of Common Stock in the Company's
initial or any subsequent public offering, including, without
limitation, shares sold upon the exercise of any overallotment option
granted to the underwriter in connection with such offering;
(3) The issuance, sale or exercise of any warrants to purchase
shares of Common Stock whether or not such warrants were outstanding
on the date of grant of the Option or thereafter issued;
(4) The issuance or sale of rights, promissory notes or other
securities convertible into shares of Common Stock in accordance with
the terms of such securities ("Convertible Securities") whether or not
such Convertible Securities were outstanding on the date of grant of
the Option or were thereafter issued or sold;
(5) The issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment
in the purchase price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of grant of
the Option or were thereafter issued or sold; or
(6) Upon any amendment to or change in the terms of any rights or
warrants to subscribe for or purchase, or options for the purchase of,
Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension
of any expiration date of any such right, warrant or option, any
change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable for Common
Stock or any change in the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock.
(f) Right of Company to Make Adjustments. The grant of an Option
------------------------------------
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassification, reorganizations, or changes
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
15. Investment Purpose. Each Option under the Plan shall be granted on the
------------------
condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 13
<PAGE>
condition is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
16. No Obligation to Exercise Option or SAR. The granting of an Option or
---------------------------------------
SAR shall impose no obligation upon the optionee to exercise such Option or SAR.
17. Modification, Extension, and Renewal of Options. Subject to the terms
-----------------------------------------------
and conditions and within the limitations of the Plan, the Committee and the
Board of Directors may modify, extend or renew outstanding Options granted under
the Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised). Neither the Committee nor the Board of Directors shall,
however, modify any outstanding Options so as to specify a lower price or accept
the surrender of outstanding Options and authorize the granting of new Options
in substitution therefor specifying a lower price. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent of
the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
18. Effective Date of the Plan. The Plan shall become effective as of May
--------------------------
23, 1996, ("Effective Date"); provided, however, if the Stockholders of the
Company shall not have approved the Plan by the requisite vote of the
Stockholders, within twelve (12) months after the Effective Date, then the Plan
shall terminate and all Options theretofore granted under the Plan shall
terminate and be null and void.
19. Termination of the Plan. This Plan shall terminate as of the expiration
-----------------------
of ten (10) years from the Effective Date. Options may be granted under this
Plan at any time and from time to time prior to its termination. Any Option
outstanding under the Plan at the time of its termination shall remain in effect
until the Option shall have been exercised or shall have expired.
20. Amendment of the Plan. The Plan may be terminated at any time by the
---------------------
Board of Directors of the Company. The Board of Directors may at any time and
from time to time without obtaining the approval of the Stockholders of the
Company or a Subsidiary, modify or amend the Plan (including such form of Option
Agreement as hereinabove mentioned) in such respects as it shall deem advisable
in order that the Incentive Options granted under the Plan shall be "Incentive
Stock Options" as defined in Section 422 of the Code or to conform to any change
in the law, or in any other respect which shall not change: (a) the maximum
number of shares for which Options may be granted under the Plan, except as
provided in Section 14 hereof; or (b) the option prices other than to change the
manner of determining the fair market value of the Common Stock for the purpose
of Section 8(d) hereof to conform with any then applicable provisions of the
Code or regulations thereunder; or (c) the periods during which Options may be
granted or exercised; or (d) the provisions relating to the determination of
persons to whom Options shall be granted and the number of shares to be covered
by such Options; or (e) the provisions relating to adjustments to be made upon
changes in capitalization. The termination or any modification or amendment of
the Plan shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to such person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date of
modification or amendment.
21. Withholding. Whenever an optionee shall recognize compensation income as
-----------
a result of the exercise of any Option or SAR granted under the Plan, the
optionee shall remit in cash to the Company or Subsidiary the minimum amount of
federal income and employment tax withholding which the Company or Subsidiary is
required to remit to the Internal Revenue Service in accordance with the then
current provisions of the Code. The full amount of such
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 14
<PAGE>
withholding shall be paid by the optionee simultaneously with the award or
exercise of an Option or SAR, as applicable.
22. Indemnification of Committee. In addition to such other rights of
----------------------------
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceedings, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
23. Application of Funds. The proceeds received by the Company from the sale
--------------------
of Common Stock pursuant to Options granted hereunder will be used for general
corporate purposes.
24. Governing Law. This Plan shall be governed and construed in accordance
-------------
with the laws of the state of incorporation of the Company.
EXECUTED this 16th day of September, 1996, to be effective as of May 23,
1996.
SPECIALTY TELECONSTRUCTORS, INC.
By: /s/ Michael R. Budagher
---------------------------------------
Michael R. Budagher,
President
ATTEST:
/s/ Dennis K. Hartnett
- ---------------------------------------
Dennis K. Hartnett, Secretary
AMENDED AND RESTATED 1994 STOCK OPTION PLAN Page 15
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Percentage
of Voting
Securities
Name Address Incorporation Owned
- ---------------------------------- --------------- ----------------- ----------------
<S> <C> <C> <C>
Specialty Constructors, Inc. Cedar Crest, NM NM 100%
Specialty Management, Inc. Cedar Crest, NM NV 100%
Specialty Acquisitions, Inc. Cedar Crest, NM NV 100%
Specialty Combined Resources, Inc. Laguna Hills, CA TX 100%
Specialty Fortress, Inc. Cedar Crest, NM NV 100%
Specialty Training, Inc. Cedar Crest, NM NV 100%
Specialty Constructors East, Inc. Cedar Crest, NM NV 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Financial Statements of the Company attached as Appendix F to the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,863,469
<SECURITIES> 0
<RECEIVABLES> 6,443,054
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,483,743
<PP&E> 2,967,059
<DEPRECIATION> 809,560
<TOTAL-ASSETS> 12,794,960
<CURRENT-LIABILITIES> 5,762,290
<BONDS> 0
0
0
<COMMON> 40,923
<OTHER-SE> 6,486,848<F1>
<TOTAL-LIABILITY-AND-EQUITY> 12,794,960
<SALES> 16,758,629
<TOTAL-REVENUES> 16,990,576
<CGS> 13,986,351
<TOTAL-COSTS> 15,687,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,618
<INCOME-PRETAX> 1,276,753
<INCOME-TAX> 472,398
<INCOME-CONTINUING> 804,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 804,355
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>Other Equity of $6,486,846 is comprised of Additional paid-in Capital of
$4,166,359 and Retained Earnings of $2,330,489.
</FN>
</TABLE>
